How To Catch Trend For Big Gains

How To Catch Trend For Big Gains In Forex

This forex blog from forex friend loan will look at the most important key to success in the forex market about how to catch trend for big gains in forex.

Recognizing positive trends is difficult in the forex market, getting in or out too late could mean your entire bankroll. You do not have to be the best of the best in order to make a profit, but you do need to get in at a low enough point and get out at a high enough point to make a profit. If you do not recognize the right forex trading strategy, you will wind up getting buried and be out of the game before you ever even got your feet wet.

If you take the proper precautions before trading you can help yourself a great deal. I personally know a number of traders who have been interested in getting into the forex market but don't want to stake the risk associated with it. I've been a regular forex trader for a few years and stand by my claims that there's only as much risk as you leave room for. If you take the proper precautions before trading you can help yourself a great deal.

A trend indicator is an important tool which I use daily in each of my forex campaigns. For those who are unaware, this is a program which you use in conjunction with your campaign and it essentially predicts where the market will go before it happens. If you read and use this information to its full potential, you can dominate sects of the market.

CATCHING BIG TREND CAN BE EASY WITH THE RIGHT FOREX INDICATOR

We shall look at how to trade the trend in forex.

It has happened to us all before. We open the charts to see what the market holds in store for the day, and all that beams back to us is a confusing maze of candlesticks with no apparent pattern. When confronted with such a chart, the dilemma for the trader is whether to go long, go short or stay out of the market altogether.

Now to the untrained eye, it may all look pretty confusing, but it actually is not. Opportunities can be found in the midst of strong trends by following the steps set out below.

The first step is usually to establish that the asset has some form of a defined trend. This can be detected on a long-term chart if we see the candlesticks that depict price movement making higher highs and higher lows (uptrend) or making lower highs and lower lows (downtrend).

There are basically two things that can happen when an asset is a trend:

a) It will keep on trending strongly and only allow the trader to buy on dips and to sell any rallies.
b) The trend may dissolve into a period of consolidation, after which it either continues in the pre-existing trend or experiences a reversal.

How To Trade A Strong Trend In Forex Market

A strong trend usually occurs when there is a very strong fundamental force driving the currency pair which lingers in the market for a long time. When there is a strong trend in the asset, the best bet for a trader who wants to capitalize on what is going on is to buy whenever there is a dip in the price of the currency pair, or sell whenever there is a brief rally. What does it mean to sell a rally and buy a dip?

1. Buying The Dips, Selling The Rallies
Buying a dip and selling a rally is simply a popular market lingo which means to buy low and sell high. The buying at lows is done in a currency pair that is in a strong uptrend while selling at highs is done when the asset is in a downtrend. The driving force behind buying dips and selling rallies is that the price of an asset never moves in a straight line, but sometimes huffs and puffs along the way as it marches to its new levels. Such “huffs and puffs” as we call it are simply periods of profit-taking when traders who got into trades following the trend at an early stage have made some money and want to cash out some or all of it. At other times, some market events may make a good proportion of traders to have a rethink, or to re-evaluate positions before continuing to hold on to them. Sometimes there is a little of trade exiting and the entrance of new traders or addition to existing positions by those who still believe there is more money to be made on the trend. All these accounts for the brief periods when there are pullbacks that present the opportunity to either buy on dips or sell on rallies.

Now is it wise to simply buy on dips and sell on rallies? No. The dips must be buyable and the rallies must be sellable, otherwise what the trader may think was a dip to be bought or a rally to be sold may turn into full-fledged trend reversals which will cause the trades to end on the losing side. It is, therefore, good practice to use confirmatory filters for such trades. One way I do this is to look for the following:

a) Where such a retracement dip or retracement rally exists. For this, I use the Fibonacci retracement tool. I also consult lower time frame charts to confirm that there is indeed a retracement going on. If you use the daily chart for this, there may be some confusion as candles may be too close together to allow for visualization of clear retracements. Sometimes, only a single candle will show this retracement action, but if the lower time frame chart is used, what may look like a small single candle movement may well be a 300 pip retracement! Do not forget that in a daily chart, one candle represents the price activity for a whole trading day.

b) If the time is right to buy a dip or sell a rally. This is best deciphered by using oscillators that show where the asset is oversold or overbought. My favorite here is the Stochastics oscillator set to 10,3,3 which shows oversold status at 25 or below, and overbought status at 75 and above.

It is quite easy. Apply the Fibo retracement tool from swing high to low (downtrend) or from the swing low to high (uptrend). Then apply the Stochs oscillator, and look for where the price hits a retracement level when the asset is oversold to buy the dip, or when the asset is overbought to sell the rally.

Buy the dip…
Apply the Stochs oscillator, and look for where the price hits a retracement level

Sell the rally…
Sell the rally

Remember to always buy the dip in an uptrend, and sell the rally in a downtrend. Do not get these mixed up.

2. Trading The Breakouts
As identified earlier, there will be periods when the asset goes into consolidation as if unsure of what to do next. It may stay in consolidation for some time, presenting yet more opportunities to either buy low or sell high. Once the currency pair has made up its mind to keep moving like a traveler who just completed a stopover en route to the final destination, it takes off once more in the direction of the initial trend. This is a breakout and is yet another way to trade a strong trend.

We can see the initial trend, followed by a consolidation period and then a breakout. Within the area of consolidation, we can see the areas where the trader can buy on dips and sell on rallies. It is not hard to see why this is the case: there are a well-defined support and resistance, something which is not obvious if you are trading an active trend where the dip buying and really selling points must be deciphered as described above. Furthermore, there are other chart patterns which are classical continuation patterns where the price consolidates within their boundaries and eventually breaks out. Such continuation patterns are the ascending/descending triangles, flags and pennants.

Here, we are more concerned with the breakout. In a breakout, the trader is actually buying into highs and selling into lows, a direct opposite of the dip and really trade described above. You could call it selling the dips and buying the rallies. But why would this be another trading strategy for trading the trend?

Breakouts are usually the result of market fundamentals driving the asset in the direction of the initial trend. It could be due to a high-impact news release which drives traders into mass buying or selling following a period of waiting (the consolidation). It could also be due to technical plays where more players in the market assume a buying posture than a selling one (ascending triangle, bullish flag, bullish pennant) or assume a selling posture than a buying one (descending triangle, bearish flag, bearish pennant).

Whatever the case, a breakout presents fantastic trade opportunities. We have written about this in some of our earlier posts. It is easy to confirm if an asset has truly broken out or merely performed a fakeout move. Refer to our article on breakout trading to refresh your memory about how to identify a true breakout (which is tradable) and a fakeout (which is a trap).

We can clearly see the breakout bullish candle which produced the key to trade entry.

Conclusion
In summary, You can get in a profitable trade at the ground floor, then get out right as it peaks before it comes back down. This is the secret to success and owning this market, it's been the same for years ever since people began trading, but now thanks to trend indicators it's a great deal more reliable to trade this way, in getting back to reducing the risk factor.

When you open your charts for the day, first determine what the trend for the asset is. Then assess its suitability for a breakout trade or for a buy on dip/sell on rally strategy. With a little practice on a demo, the charts will not faze you anymore and you can then use the knowledge to make profits for yourself and transfer knowledge to others for a fee if you like.

How To Catch Trend For Big Gains