Turning Points in Forex Market Trends

With the increasing freedom of international capital flows across countries, international payment systems such as the U.S. CHIPS and the U.K. CHAPS have significantly accelerated fund transfers, enabling near-instantaneous transactions. The massive inflows and outflows of international capital have given rise to "hot money."

"Hot money" not only impacts the monetary policies of various countries but also distorts the reasonable price levels reflected by fundamental analysis, leading to temporary inefficiencies in fundamental analysis. As a result, forex investors have gradually adjusted their use of fundamental analysis, employing it not only as a tool for medium-to-long-term market expectations but also supplementing it with technical analysis to refine their investment decisions.

A trend may persist for some time, but it cannot continue indefinitely. How can one analyze whether a trend is approaching a turning point? Generally, the following methods are used:

1. Compare the angle of the recent forex decline (rise) with that of the previous decline (rise).
   The angle represents speed and efficiency. If the angle flattens, it indicates a divergence in efficiency. This divergence occurs because the force sustaining the original trend weakens, leading to unfavorable changes within the trend.

2. Compare the extent of the recent forex decline (rise) with that of the previous decline (rise).
   The extent represents overall strength, effectiveness, and endurance. If the extent diminishes, it signals a divergence in total force, resulting from weakened endurance and exhaustion of the original trend's strength.

3. Compare the angle and extent of the recent rebound (pullback) with those of the previous forex rebound (pullback).
   
   If the extent remains the same but the angle widens, or if the angle remains the same but the extent increases, or if both expand, it suggests a strengthening counter-trend force, potentially forming a turning point. Action can be taken after the next decline or rise. This is another form of divergence—counter-trend divergence, which can be termed "reverse divergence."
   
   

Ideally, one should compare the angle and extent of the next decline (rise) with those of the previous one. However, "reverse divergence" allows for early anticipation and observation of potential divergences.