What is forex?

Foreign Currency Exchange (Forex) Trading allows an investor to participate in profitable fluctuations of world currencies. Forex trading works by selecting pairs of currencies and then measuring profit or loss by the fluctuations of one currency�s market activity compared to the other. For example, fluctuations in the value of the U.S. Dollar are measured against another world currency such as the British Pound, Euro, and Japanese Yen etc. Being able to discern price trends in forex market activity is the essence of all profitable forex trading and this is what makes foreign currencies so exciting, currencies are the world's 'best trending' market. This gives Forex investors a profit making edge that is unavailable in most other markets.

Forex trading is being called 'today's exciting new investment opportunity for the savvy investor'. The reason is that the Forex Trading Market only began to emerge in 1978, when worldwide currencies were allowed to 'float' according to supply and demand, 7 years after the Gold Standard was abandoned. Up until 1995 Forex Trading was only available to banks and large multinational corporations but today, thanks to the proliferation of the computer and a new era of internet-based communication technologies, this highly profitable market is open to everyone. The Forex Trading Market's growth has been unprecedented, explosive, and continues to be unequaled by any other trading market.

Unlike traditional trading which brings buyers and sellers together in a central location (trading floors) in Forex Trading there is no need for a centralized location. Forex is a market where worldwide traders conduct business by high-speed Internet connections with the Interbank Foreign Currency Exchange via Forex Clearinghouses (also called Forex Brokerage Firms). Forex has not only become the fastest growing trading market, but also the most profitable trading marketplace in the world.

Simply stated, Forex is the most profitable because it is the world's largest marketplace. The Foreign Currency market as a whole accounts for over 1.2 trillion dollars of trading per day (as determined by the fourth Central Bank Survey of Foreign Exchange and Derivatives Market Activity, 1998. This figure is understood to be significantly higher today). To put this into perspective, on any given day the Foreign Currency Exchange Market activity is vastly greater than the Stock Market. It is 75 times greater than the New York Stock Exchange where the average total daily value (using 1998 figures) of both foreign and domestic stocks is $16 billion, and much greater than the daily activity on the London Stock Exchange, with $11 billion.

Furthermore, in addition to being the world's largest and most profitable market, The Foreign Currency Exchange Market (forex) is the world's most powerful and persistent trading market regardless of negative economic indicators. This is because currencies 'trend' better than every other market due to their macro-economic nature. Unlike many commodities whose supply and demand fundamentals can literally change overnight (as we found in the sudden dot com 'market adjustment' and even more abruptly on September 11, 2001), currency fundamentals are much less random, and far more predictable. This is well illustrated in the way interest rates are changed gradually and only in small increments.

Other examples of fundamental predictability are illustrated by the following statistics. Of the $1.2 trillion day trading in Foreign Currency Exchange, 83% of spot foreign exchange activity and 95% of swap activity involves US Dollars. The Euro is the second most active currency at 37%. The Japanese Yen (24%) and the British Pound Sterling (10%) are ranked third and fourth. The Swiss Franc is 7%, and the Canadian and Australian Dollars account for 3%.

Spot Forex is the type of forex trade in which self-traders concentrate most of their investment activity for reasons that are self-explanatory. By definition, a Spot Forex transaction is a currency trade transaction that has a settlement (liquidation) within a maximum of 2 working days following the closing of the trade. Therefore Spot Forex allows the self-trader high liquidity. Another popular feature for well-advised Spot Forex self-traders is the strong profit potential from continual market fluctuations by buying a specific currency when it is weaker and selling it when it is stronger, and the continual pairing of strong currencies against weak ones. This potential for profit or loss is amplified by the effect of leverage. Leverage is a term that describes what can be achieved when a smaller amount of money controls a much larger amount of money. With regards to Forex Trading for example, a leverage-factor of 100 can allow the trader to hold a 100,000 US Dollar position with a modest 1,000 US Dollar margin deposit. Online Forex day trading focuses its investment activity largely on Spot Forex because of the 'risk manageability' of in-and-out trading plus the potential to generate excellent and highly liquid profits.

"Few financial industries generate as much excitement and profit as currency exchange. Traders around the world enter trades for weeks, days or split seconds, generating explosive moves or steady flows, and money changes hands quickly at a staggering daily average of a trillion US dollars. Forex profitability is legendary. George Soros of Quantum Fund realized a profit in excess of 1 billion dollars for a couple of days work in September 1992. Hans Hufschmid of Soloman Brothers, Inc. netted $28 million for 1993. Even by Wall Street standards, these numbers are heart stoppers".*

Despite its high trading volume and its fundamental role in the world, the Forex Market is rarely in the media limelight because its method of trading transaction is less visible than the Floor of a Stock Exchange. However, trading on the Foreign Currency Exchange Market is today surging into the public awareness, as flocks of internet traders are attracted by the market's inherent profitability and risk manageability. Add to this the absence of geographic or temporal boundaries and vibrantly active Forex market is open to all players


As it was already mentioned, due to high liquidity Forex allows to change without any difficulties practically all volumes of one currency to another. Moreover, high liquidity means that a transaction might be closed practically immediately. It is achieved due to two reasons. Firstly, the trading is carried out via electronic means, secondly, every moment the market is full with big number of buyers and sellers that in accordance create the highest demand and equitable supply. However liquidity and volumes are not the only advantages of Forex. Working with Forex you have a possibility to choose when and how long you are going to work and when and how long you are going to have a rest, fun, to study or communicate with friends and relatives etc. Your profit depends only on you. It does not depend on your boss or your stuff, your business partners, supplies, terms, goods or services. There is seasonality at Forex but it does not influence your profit. You can choose the appropriate profitable tactics for every time period. You do not spend money on advertisement of your goods or services, you do not look for buyers, you are not obliged to certificate or license your production, and all this brings your overhead and commercial expenses to naught. You will need a PC or a mobile device (laptop, tablet PC) with the net access for your work. This is all.Forexeva will supply you with special software for free. You can work in your apartment, dealing-room, Internet-cafe, to put it simply, in any place with Internet access. With the help of Internet data card you can choose a comfortable place for your work in any place of the world. Apart from these there is one more advantage of Forex. Having fix profit on a percentage base (for example, 30% per month) your profit in absolute term will grow with the increase of your capital. Mathematicians proved that having a positive (no matter how small it is) mathematical expectancy of trade strategy, with the help of means of money management it is possible to provide anexponential growth of deposit.

The difference between line and exponential profit
In case of using the advisors in trade (EA), this type of profit may be regarded as passive profit. It means that once you create the conditions for gaining the profit, you just get it regardless of your work.

Currency pairs

To make it easier to understand which positions are opened, a concept of currency pair at Forex market was introduced. Instead of saying "I have bought euro for dollar" or �I have sold euro for dollar" traders use shorter phrases: "To buy euro-dollar" or "To sell euro-dollar" (respectively). Let us see what currency pair is in details. The record of currency pair is an abbreviation of names (in compliance with ISO 4217 standard) of relative currencies that stand one after the other (without spaces, but sometimes with right slash "/"). For example, currencies euro (EUR) and dollar (USD) make together a currency pair EURUSD (euro-dollar). Buying this currency pair means buying euros for dollars. Always in any case regardless of currencies in the pair, the first of them is bought with the second one. Thus the AUDCAD buying means the buying of the Australian dollars for the Canadians ones. Likewise the EURUSD selling means the selling of euro for dollars. Using professional language, the first currency pair is the basic one, and the second is the quoted one. Thus in NZDUSD pair the basic currency is the New Zeeland dollar (NZD) and the quoted one is the American dollar (USD). When examining the list of currency pairs (for example, in client terminal MetaTrader4 by ForexEva Company in the window "Market review"), it should be mentioned that there are financial instruments where basic currency is the American dollar (for example, USDJPY, USDCHF, USDCAD). In this case it is said that direct quoting takes place (it shows the quantity of units of the quoted currency in one American dollar). In the same time, the American dollar is a quoted currency in some other pairs (for example, EURUSD, GBPUSD, AUDUSD, and NZDUSD). It is called back quoting. The value of price in this case should be interpreted as quantity of dollars in one unit of basic currency. Of course by means of simple mathematical transformation it is not difficult to get USDEUR currency pair from EURUSD. Indeed, lets EURUSD price in some time period will be 1.39224. Then

� will be the USDEUR price.

Why there are no such financial instruments in quoted lists of the largest broker companies? - It is just a historic tradition.

The currency pairs listed above: USDJPY, USDCHF, USDCAD, EURUSD, GBPUSD, AUDUSD, NZDUSDmake the group of so-called "majors" - they are united by the presence of the American dollar in each of them. They are high liquid financial instruments that are characterized by significant volatility and ability to change greatly, and thus have great potential for making profit.

There are other groups of instruments. If, for example, the basic currency is the Australian dollar, and the quoted one is the Canadian dollar, then this cross-rate is AUDCAD. So-called cross-rates are divided into "major crosses" and "minor crosses" according to their liquidity on the financial markets. Furthermore, there are different groups of financial instruments, it is noted that the separate currencies can play that or this typical role more frequently. In particular the currencies of more stable countries and also contracts on precious metals (USDCHF, USDJPY, XAUUSD, and XAGUSD) may be financial instruments and the investments that can permit to wait safely till the crisis on the markets is over. Using trade jargon, these instruments are called "refuge-currency". The currency of countries in export structure of which the raw materials prevail, are usually called raw material currencies (for example, USDCAD, AUDUSD).

Price & spread

Price is the cornerstone of trading. No matter what goods we are talking about, every time the situation may be described like this: a seller considers the value of these goods to be lower than value of money he wants to get, and a buyer considers the value of goods higher than value of the money he is ready to pay for these goods. If the opinion of the value of goods and money is opposite, then transaction takes place only in case that a seller and a buyer agree on the price. At Forex the goods are money, but it does not change the sense of the trading. Here we take into consideration the value of one currency against the other.

The main question that a trader should decide on - is "how the price will change?" (in that or this financial instrument). On this basis he will build his opinions about the value of that or this currency. If he thinks that one currency will grow in its price against the other he will take decision to buy it. Otherwise - to sell it.

To make forecasts about the price changes more successful you must know how it is formed and what it depends on. One of the fundamental statements of Dow Jones' theory is that "the Price takes into account everything". It means that the level of current price reflects all the factors that can influence it (economic, technical, political, natural and others). Most traders have no doubt about verity of this phrase. However, it is impossible to take into consideration "everything" (it means endless quantity of factors), and this can be a reason for certain indefiniteness in the consciousness of a beginning trader.

We will take into consideration a simple model (from the point of view of technical analysis and regardless fundamental knowledge). In correspondence to this model, in conditions of absolutely free market the price depends on demand and supply. Demand is a total volume of the financial instrument that traders (bulls) in the market will want to obtain in near future. The demand is determined by claims for purchase set at themarket ( it means that it is not enough to have only a desire: it is necessary to set an order to influence somehow the demand). Supply, on the contrary, is a total volume of this financial instrument that is set for selling by traders (bears).

The influence on demand and supply looks as follows:
� The increase in demand (new buyers come to the market (traders-bulls)) means increase of prices;
� The increase in supply (new sellers come to the market (traders-bears)) means decrease of prices.

We say "as a rule" because there are situations when increase in demand is followed by corresponding increase in supply. In this case trade volumes might become significantly bigger without any change of price. Likewise the supply increase might be "swallowed" by simultaneous increase of demand. That is why it is possible to discuss a foundation of more or less significant price movement if the changes bring to "deformation" of the level of demand and supply.

Spread is the difference between the lowest price of supply (bid) and the highest price of demand (ask). The size of this difference constantly changes as the market always forges ahead. Let us see it on the following example. In certain time period the rate of pair EURUSD is equal to 1.37513/1.37541. It means that in this time period it is possible to buy euro at the price of 1.37541 (it is the lowest price at which you can buy it) and it is possible to sell it at the price of 1.37513 (it is the highest price at which you can sell it). In this case spread is equal to 28 points (2.8 of standard point).

Each trader wants to buy at the lowest prices and to sell at the highest ones (this is one of "golden rules" of trading). If, for example, you do not want to buy at the price of 1.37541, you can set an order for the purchase at the level of 1.37500 and wait until the price reaches this level. However, it will happen only if demand does not increase, and the supply exceeds the demand at least a bit. In this case the sellers have nothing else to do than to lower price until it reaches the level of 1.37500 - then it will be sold to you at the desirable price (and so you can buy it at the price of 1.37500). And in opposite case: you are not ready to sell at the price of 1.37513. You set the order, for example, at 1.37550 level and wait until the price reaches it. It can happen in case if supply does not increase, and demand exceeds supply, at least, a bit. Then the buyers will have nothing to do than to buy at higher price. Sooner or later one will buy from you at the price of 1.37550.

As a matter of fact it has to be noted that spread (that is also known as "rate differences") takes place not only at Forex. The difference between price of purchase and selling is a part of every exchange office or bank. However, in Forex this difference is the lowest possible.

Margin trading

Financial markets are an economic system where its participants trade in specific goods - financial instruments. The system includes such participants as banks (that can play the role of market-makers), exchanges, broker companies, financial instruments (for example, funds) and individual traders. The goods that are sold by the participants, are called financial instruments or assets. In the most general sense, financial instruments are certain obligations (contracts) that prove facts of mutual demands of two parties. The first party is obligated to supply (immediately or in future, unconditionally or on certain conditions) goods, and the second - to pay (for example, with money or securities).

An important feature of the financial markets is that the money or securities themselves might be regarded as goods. But of course common (usual) goods and raw materials are also sold at the financial markets. On the basis of it the financial markets may be divided into foreign exchange markets, stock markets and raw materials markets.

An important feature of the financial markets is that the money or securities themselves might be regarded as goods. But of course common (usual) goods and raw materials are also sold at the financial markets. On the basis of it the financial markets may be divided into foreign exchange markets, stock markets and raw materials markets.

Types of financial markets
In our course we will pay general attention to foreign exchange market Forex and its participants, including broker companies and individual traders. Roles and functions of others participants of the financial markets (banks, exchanges, financial institutions) are widely described in other sources (see The List of Recommended Literature) and also in other (special) courses of our company.

The other feature of the financial markets is standardization of volume of transactions (size of contracts) by means of lots. At the Forex exchange market a standard contract (one lot) is equal to 1 000 000 (one million) units of acquired currency. In the reality such volumes are sold very seldom at Forex. More typical situation is when the transaction has a volume of ten (10 000 000 units) or more lots.

Such a volume of deals is not always available for an individual investor. The broker companies that provide their services to Forex (for example, ForexEva), give an opportunity to individual traders to carry out operations at the foreign exchange market Forex providing them with so-called leverage. It goes like this. A trader opens an account in the company (sometimes it is called a secure deposit). This deposit is used as a bail (margin) that provides a guarantee of the client ability to pay to the broker company.

When a transaction is opened, a certain part of means, that becomes a guarantee of the transaction (margin), is frozen on the client�s account. The broker company, from its part, adds means, increasing the sum by 50, 100, 200 or 500 times. Basically, it is a purpose loan provided to the client by the broker company for the full time of life of transaction Some companies provide such a credit at certain interest or charge a certain commission, but Forexeva provides the leverage to its clients for free. The size of the leverage in this case is indicated as 1:50; 1:100; 1:200 or 1:500. Using the leverage, an individual trader may enter Forex having relatively small deposit. Thus if a trader has $10 000, then using the 1:100leverage, the biggest possible amount of the transaction that is available for him is equal to 1 000 000 (one million dollars).

The work of leverage
Apart from leverage broker companies provide an opportunity to trade using cent accounts and work with fractional lots. In this case a trader gets an opportunity to work with deposits from US$1 (at cent account it is equal to 100 units) that by means of leverage will allow him to open a transaction at volume of 10 000 (0,1 of lot); the transactions at volume of 10 000 or less are called fractional (mini-, micro-) lots. Broker companies cannot lead such micro-transactions at the foreign exchange market separately. Thus in case of work with cent accounts, the consolidated position is led to the market.

Lot & transaction

As we said before, the biddings at the financial markets are carried on with standardized by volume parts. These standard parts (volumes of supplies of financial instruments) are called lots. One standard lot at the Forex currency market is equal to 1 000 000 (one million) units of basic currency. For example, if we take currency pair EURUSD, then in buying transaction 1 000 000 (one million) euro will be obtained with corresponding quantity of dollars. If the price of buying is 1.38997, then 1 389 970 will be needed to obtain 1 000 000 euro.

Several lots make together total volume of transaction. For example, 10 lots is a volume that is equal to 10 000 000 (10 million) units of obtained currency. Broker companies also give an opportunity to operate with fractional (mini- and micro-) lots. In particular, Forexeva company considers 100 000 as a standard lot and allows traders to open transactions at volume of 0.1 lots (10 000 units) and 0.01 lots (1 000 units).

And now let us meet with buy and sell transaction in details. Each transaction (also known as full transaction) consists of two transactions: opening and closing. Closing of the transaction is always an opposite action to the opening. For example, if a transaction was opened by a purchase, then it must be closed with a selling, and vice versa: if the opening of the transaction is a selling, then its closing will be a purchase. For more details read chapter 2.1 "Price and spread" part "Technical analysis".


The process of trading at Forex may be divided into two parts: "Waiting" and "Trading". These parts interchange permanently. It is not possible to trade constantly (just because every strategy has periods when it makes sense to enter the market, and when it is better to be outside). However during the period of "Waiting" it is not necessary to idle. As a rule during "Waiting" trader makes an analysis of the market (see chapters II and III), keeps count and analyses his past transactions (correction of mistakes).

Here we will describe the process of trading in details and describe stages of life of any transaction. Each buying and selling operation in currency contract (sometimes it is called full transaction) consists of the following stages:

� setting order by trader (via electronic trading system of a broker company in order to do that or this action is sent; the types of orders will be described later);

� Fulfillment of order by broker company (as a result of fulfillment of order) upon condition that the order is set correctly and can be fulfilled in current trade conditions, basically, a transaction takes place.

� One or several such transactions (they are called opened transactions or opened orders) compose the position of a client at the market.

� position has so-called "floating " result - it reflects at such characteristic as "Means"

� while order is still opened, a trader may that or this way modify it;

� transaction is closed with that or this order, and the operation of closing of a deal is always opposite to the operation of an opening;

� As a result of closing of transaction its financial result reflects in balance, and record is added to the history (statement), where it transforms into closed order.

Described life cycle of an operation is the ideal variant that is shown on the picture. In reality it must be take into consideration that not all setting orders bring to the opening of transaction. Fulfillment of an order also has its nuance. Besides the closing of the transaction can be declined because of the situation where the quantity of available means at the deposit is not enough for supporting the position (margin call or stop-out), and not as a result of a fulfillment by a broker an order, set by a trader. In our course however we will not describe all the details. It is a task of other special courses of our company.

General types of orders:
� Market is an order of trader to broker to fulfill a transaction for current market price. We can mark out next subtypes of market order:
o market buy - to open a transaction for purchasing at current price ask;
o market sell - to open a transaction for purchasing at current price bid;
o market close - to close a transaction at current market price (purchase transactions are closed with selling at bid price, selling transactions are closed with purchase at ask price);

Get (pending order) - order to broker to fulfill a transaction under some conditions. There are next types of pending orders:
o Buy stop - to open a purchase transaction under condition that the price overcomes certain level in order in its movement from bottom to top (to buy at trend);
o Buy limit - to open a purchase transaction under condition that the price reaches a certain level in its movement from top to bottom (to buy at kickback);
o Sell stop - to open a purchase transaction under condition that the price overcomes a certain level in its movement from top to bottom (to sell at a trend); Picture 3: The difference between line and exponential profit;
o Sell limit - to open a purchase transaction under condition that the price reaches a certain level in its movement from bottom to top (to sell at kickback);

� Stop loss (pending order, that does not exist separately from "basic" order position)
Order to broker to close position after reaching a certain level of losses (to cut losses). For purchase position stop loss can be only below the current price, and for the selling position stop loss can be only higher the current price. In case if there is a floating profit in the position, then stop loss order may be set in the loss area at the level of opening (this will bring to result when the transaction reliably will not be unprofitable), and in profit area (this will allow to close the position if floating profit will start to decrease);

� take profit (pending order, that does not exist separately from "basic" order position)

Order to broker to close position after reaching a certain level of profit. This order allows to fix a floating profit in the position, reflecting it in balance. For purchase position take profit may be only higher than current price, and for selling position - only lower than current price. In case if the current result in the position is unprofitable, then take profit may be set both in loss area (this will allow to close transaction as soon as profit will decrease) and opening level (this will allow to bring the transaction to the position when it will be profitable).

It is recommended to meet with corresponding statements about regulations of realization of the trading operations of your broker, to learn more about types of orders and about peculiarities (conditions) of its fulfillment.


Volatility (mobility) is an ability of price to change its current value. Volatility takes place when there are high volumes of demand and supply. Another transaction at Forex changes the price that or this way (for example, if all the volume that sellers wanted to sell at the price of 1.37541 is bought it will lead to the increase of ask price and it will reach the 1.37542 level, where new selling are available). The change in price depends on the cooperative work of sellers and buyers.

Let us see on a simple example how and why market "waves" are formed (here it should be mentioned that in reality market waves are formed more difficult way and have more specific stages of development, but our task is to show a simple model, and for more detailed learning it has to be recommended a book about wave analysis and Elliott Wave Principle from the List of Recommended Literature). For example, in some time period there is a point of "balance" of demand and supply at the 1.37500. Suppose in addition to this that there are some new buyers in the market (see "Stage 1", pic. 4).

The development of market wave (simplified)
They set orders for purchase and increase demand. Each purchase leads to the price increase, and if there are many such transactions, then the price starts to grow gradually. At this moment other traders see the increase in price on their monitors and suppose that ascendant movement has began. As a result the simple "viewers" in the past become buyers (bulls). This increase of supply starts to move the price upwards. So-called "ascendant wave" is formed ("Stage 2", Pic. 4).

However, each demand has its limit, and sooner or later it is satisfied. The quantity of buyers that are ready to enter the marker decreases. Some of the traders that wanted to buy, but saw that the price became high enough and was too "high" from their point of view, - refuse to buy. The traders oriented on very short-term time horizon note that they have some profit from their purchase transaction, which was closed later. They start to fix it (it means to sell). All this leads to decrease in demand, and increase in supply. Price rising becomes slower ("Stage 3", Pic. 4).

Delay of price rising reflects at the traders' monitors, and they decide that the "correction" will be possible soon. Either with the aim of fixing or hedging, traders start to increase the volume of sells, or that leads to increase of supply over demand and this, in its turn, price decrease. ("Stage 4", pic. 4).

Such process take place constantly in the market. As the result of this, big and small market movements are formed (the size of the movement depends on the cooperative work of traders and on the quantity of bulls and bears). The result of market movement is the formation of trends (tendencies). We will discuss it later (see Ch. 2.3. Trends).

It is clear from the above description that volatility depends directly on the players� activity. Thus Forex market has certain seasonality. During the trade sessions in different regions the volatility changes. Trade sessions in regions are divided as follows (the time pointed in correspondence to time zone UTC/GMT 0):

� Pacific Region
o Wellington - from 20:00 to 05:00
o Sidney - from 22:00 to 07:00

� Asia
o Tokyo - from 23 to 08:00
o Hong Kong, Singapore - from 00:00 to 09:00

� Europe
o Frankfurt, Zurich, Paris - from 07:00 to 16:00
o London - from 08:00 to 17:00

� America
o New-York - from 13:00 to 22:00
o Chicago - from 14:00 to 23:00

As you can see from this graphic, there are periods when trade sessions "overlay" each other. At this moment there are the highest quantity of players on the market. This gives rise to the biggest volatility. Here we say "as a rule" because, of course, there are some exceptions. For example, if in the region or the government given the trading platforms are closed because of that or this national holiday, then the volatility at Forex at this time will be much lower, than usually. The same untypical volatility decrease may be overviewed when the market waits for some important macroeconomic news.

Apart from changes in the volatility within 24 hours, there are some other "types" of seasonality. For example, traditionally in the middle of the week (Wednesday, Thursday) the volatility on average is higher than in the beginning or the end. In the middle of the month (on the average) the volatility is higher than in the first or the last days. In summer the volatility is lower than in winter because of mass vacations (traders are people too, they take a rest sometimes). And so on. But we cannot speak about the strict rules here. For example, the first Friday of every month - is a day of issuing of important macroeconomic news like information about job market in the USA (so-called "payrolls"). This makes first Friday "untypical": the market is practically unmoved until the news are issued. As a rule it starts moving faster and stronger after issuing. That is why it is important to understand that it is impossible to make "general rules". The analysis of the context should be made and the corresponding changes should take place.


Trend is your friend. This is one of general rules of the technical analysis. Usually the meaning of this phrase is interpreted this way: once began, trend is aimed to develop in given direction and develops until the opposite trend starts. We talked about price movement earlier. However not every price movement is a trend. Ascendant trend is that complex of price movement in which each next maximum is higher than previous one, or each next minimum is higher than previous too. Descendant trend is such a complex of movement in which each new minimum is lower than previous minimum, and each new maximum is lower than previous maximum.

From the notion we may come to the conclusion that to identify trend we will need no less than three points (for example, two minimums and one maximum). This identification in general case should be regarded as preliminary one: until the forth point (another minimum - for our example) will not prove or contradict forward assumption.

The opposite trend or flat (see below) starts, as a rule, when disruption of significant part of extremum takes place. For example, if at the moment ascendant trend takes place, the disruption of another significant minimum will lead to the beginning of descendant trend. On the contrary, at the moment of descendant trend the disruption of another maximum might mean the start for ascendant trend.

Change in trend after breaking of level of support or resistance

No matter what trend it is (ascendant or descendant or "side" trend (see below)), a line that crosses consecutive minimums is called the line of support, and a line that crosses consecutive maximums is called the line of resistance.


Flat is a specific type of tendency: "flat" or "side" trend ("stub"). When the price fluctuates in more or less stable horizontal (or close to horizontal) channel, this situation is called flat. "Narrow" and "expansible" flats deserve a particular attention. Progressive narrowing of price channel (consolidation) happens in the case, if price fluctuation decays slowly. As a rule in paradigm of the narrow flat a correction takes place subject to market participants have not agreed yet that general tendency exhausted (it means they do not ready for trend change), but has no strength for further development of prevailing tendency.
Narrowing and widening of flat channel