Trend Trading Strategy

How To Follow Trend Trading Strategy

The aim of this forex blog from forex friend loan is to show a trend trading strategy tips when trading a trend. Though forex markets show a significant level of volatility, currencies also show strong trends. In order to become a successful forex trend trader, you need to identify these trends and learn to follow them.

They say the trend is your friend. Or, ride the trend until its end. But, what should a trend trader do to ride a Forex trend?

Trading is not for everyone. Everyone wants to trade trending markets. The problem is that trends do not form that often. However, there’s a catch!

Even if a currency pair ranges on the bigger time frames, on the lower ones small trends appear. As such, a Forex trend strategy gives results on lower time frames while the market consolidates on the bigger ones.

The biggest enemy of a Forex trend is the trader. Do you know the reason why most traders fail? They can’t handle the market heat. They only looking short term winning. Fear and greed take control of their decisions.

Therefore, instead of letting the profits run, retail traders settle for small wins. However, when it comes to cutting the losses quick, the reaction differs.

As a rule, traders find it extremely difficult to cut losses. But, equally difficult is to let the profits run.

A trend trading strategy must let the profits run. Moreover, Forex trends reversals must be part of such a strategy.

In Forex trading, any strategy without money management rules won’t survive the test of time. If traders start with the intention of buying the absolute low or selling the absolute high, they’ll fail.

Forex trend signals do not differ than reversal signals. From a money management point of view, they’re the same. Furthermore, combining a Forex trend approach with reversal strategies will make the trend trader a complete trader.

USE THIS SIMPLE TREND TRADING STRATEGY FOR BIG PROFITS

Types Of Trends
When the average price of a currency moves to a particular direction repeatedly then that is termed a trend. There are three types of trends found in the forex market: Long term, Medium term, and short term.

The trend that has a duration of greater than 6 weeks is called a long-term trend.
A medium-term trend lasts from 1 to maximum 6 weeks.
Finally, a short-term trend occurs for a very short period of time - from 30 minutes to a week.

Most of the successful traders made their fortune by following either long or medium term trends as they are easy to identify and less risky to trade. In contrast, short-term trends often reverse suddenly, and the increase trading costs of moving in and out of positions mean that short-term trend following is less profitable.

Causes Of Trends
The economic condition of a country plays a significant role in the occurrence of a trend regarding its currency. Good economic conditions appreciate the value of a currency relative to others whilst a negative economic outlook depreciates the currency.  Since the economy of a country changes fairly slowly, the trends can be quite a long term.

The trend of a currency depends on perceptions of traders, based on the known economic information. Traders often come to a consensus, and this opinion tends to result in trends.

Also when a trend is identified, the majority of the traders tend to follow that which reinforces the trend.

Profiting From Trends
Identifying a trend and knowing the entry and exit point of it is the key to your success in forex trading. Every currency has its own trend with unique characteristics. You can identify the trend of a currency by comparing its present price movement with historical data. You need to enter the trend on the basis of its direction. When you see the trend is about to exhaust, close your trades.

For example, if US dollar loses its value against the other major currencies, you can recognize the trend regarding this and can buy EUR/USD pairs. You need to set the stop loss point to a level where the stop will only get activated if the trend changes its direction. You should not over- leverage yourself as you are going for the long-term trend and need to withstand some short-term adverse movements. You can understand the movement by closely observing the price chart.

Trading Tips Every Forex Trend Trader Should Know

What is a trend in forex trading?

When the market, or the price, moves, the market trends. The longer the move takes, the stronger the trend is.

The bigger the time frame is, the stronger the implications for that currency pair and for the entire Forex dashboard. Imagine, for example, the EURUSD drops two thousand pips in a strong trend.

Because this is the most important currency pair, the implications go beyond it. Other U.S. Dollar and Euro pairs will adjust their rates.

Forex trend trading as a strategy considers the way the market moves. A trend trader will look at clues the market makes. These clues help to define the overall Forex trend.

Lower Highs And Higher Lows
The first clue that a market forms a trend comes from a very simple sequence: lower highs or higher lows. Any Forex trend trading strategy should start from this point.

A Forex trend continues with the market moving relentlessly in the same direction. Trends may look aggressive on the hourly chart. But, on the daily, or higher, the market may simply correct.

Traders that have a trend trading system always pay attention to this higher lows/lower highs series. As long as the series holds, the trend goes.

Earlier in the forex blog, I explained why retail traders fail to be trend followers. Many think they ride the trend. But, they’re not!

The problem comes from the time frame. People don’t have patience. Forex traders don’t have patience at all. This is normal because they deal with money.

Whenever money or a possible profit gets involved, things get messy. A trend trader’s first task is to have a different Forex trend approach to different time frames.

To this, I would add that a proper Forex trend analysis involves both patience and discipline. Regardless the time frame. If you consider the time frame (daily!), there’s a scope for tremendous profits. And the pair didn’t disappoint.

Trend Trader - The Two Points Strategy
Any trend trader must follow this rule: A Forex trendline gives the trend. In plain English, the trend line represents the line of the trend. Hence, you mustn’t ignore it.

Moreover, a trend trader knows a trend will, eventually, the end. As such, Trader will look for clues to spot the trend reversal.

The two points strategy consists of…you guessed it, two points! A trend line needs only two points.

The thing to do is to connect the two points (in this case, the two lower highs) and drag the trend line further on the right side of the chart. Trading is easy until a Forex Breakout in the main trend occurs.

Aggressive traders always look to buy the dip or sell the top. But, without a money management system, such an approach will end up failing.

How about that for a trade! Nevertheless, if you’re honest with yourself, as a retail trader, you won’t normally trade like this. Why not? Isn’t this a nice Forex trend system? Of course, it is. But, again, the problem comes from the execution part.

Riding A Forex Trend
One of the biggest problems a trend trader faces is related to timing. When is the best time/place to enter a trade?

The classical Forex trend following strategy says that you should buy the dip in a bullish trend. Or, sell the spike in a bearish one.

This sounds like a cool advice. But, can we have some rules? Can we, as traders, put this in some sort of trading plan? Can we have a clear entry, stop loss and take profit level, while still riding the trend?

The answer is yes. Forex trend trading strategies must follow a money management system. Without it, trading is useless.

Look For A New High/Low 
A trend trader has more patience than the regular retail trader. Scalping is not trader thing. When riding a Forex trend, every step is a planned one. When to buy or sell? A trend trader knows in advance the answer to these questions.

Let’s go back to the two-point strategy mentioned earlier. A Forex trend line strategy starts with these two points.

After drawing a trend line, all eyes should be on the moment the price pierces it. When this happens, traders face two outcomes:
– the trend line’s break could be fake.
– the trend may reverse.

How to distinguish between the two? Moreover, how to make sure the trend still runs?

Simply look for a new high in a bullish trend. Or, a new low in a bearish one. Buying takes place either from lower or higher levels. Never be afraid to buy new highs! Buying a new high means buying strength. Traders go long when new opportunities arise.

In the case above, after the two Forex trendlines show how to do it. Wait for the price to break the first one, then look for a new high.

Buy that high, place a stop loss at the previous swing’s lows and use an appropriate risk-reward ration. However, you want to make sure you stay in the trend. Hence, book half profits at the risk-reward ratio level, and trail the rest. This way, you’ll end up riding the trend until its end.

Where To Add A Position
What is the best place to add to a position?

If the trend is strong enough when to buy/sell without meaningful drawdowns? One Forex trend following strategy helps.

The way to deal with this is to use an oscillator. Any oscillator will do. However, the RSI Technical Indicator works amazing!

To make sure the Forex trend following works, simply use the overbought or oversold levels to add to a position. The Forex trend in the chart below starts with the first two points that give the Forex trendline trading strategy. By connecting the two points, you’ll have the trend line. If you project it forward on the right side of the chart, it gives the overall trend.

The RSI, in this case, acts as the best Forex trend indicator. A trend trader first looks at the trend’s direction: bullish or bearish. In this case, a bearish trend. However, the money management strategy will keep things nice and simple.

Different Forex Trend Trading Strategies
The biggest advantage of a trend is that you cannot miss it. That is if you pay attention to details.

As mentioned earlier, look for a series of lower highs in a bearish trend. Or, higher lows in a bullish one.

Then simply draw a trend line connecting the lowest points (in a bullish trend) or the highest ones (in a bearish trend). The resulting line is the best Forex trend line indicator.

Support And Resistance With A Forex Trendline Strategy
Everyone knows about support and resistance. But, few traders know that the most powerful support and resistance levels do not form horizontally.

They’re called dynamic support and resistance levels. When riding a Forex trend, they work like magic.
Riding a Forex trend is one thing. But picking up a top or a bottom after a Forex trend is another!

Yet, this is a risky approach and doesn’t represent a sound Forex trend trading system.

The bearish trend worked for quite some time. After the two points gave the Forex trendline strategy, a trend trader had great opportunities to ride the trend.

However, with a proper strategy, one can pick a top or a bottom. Again, patience is key!

AFTER the price breaks the trend line, a trend trader looks at resistance turning in support. In other words, buying starts.

DOWNLOAD FULL FREE PDF TREND TRADING STRATEGY

Conclusion
There’s no best trend indicator nor a Forex trend detector system that works all the time. Because the Forex market spends most of the time in ranges, a trend trader sees many fake moves.

But discipline overcomes setups. There’s no setup that work’s all the time. However, a Forex trend strategy works all the time.

The important thing is to make sure your account survives the next day. And the next one. And so on.

Retail traders face many headwinds. Trading algorithms (robots) govern the markets today. Yet, profits can be made riding trends.

Because the Forex market ranges most of the times, a trend trader goes on the lower time frames to catch the intraday moves. But this is a risky, as the market will swing from lows/highs simply because the previous lows/highs were broken

To make sure they survive in the long run, Forex trend traders look at the bigger time frames. The bigger picture always tells the truth.

Monthly, weekly and daily charts matter the most. They filter the noise in any given trading day and keep traders on the right side of the market.

All in all, every retail trader wants to ride a trend. Few make it, though. This forex blog explains why they fail and what to do to succeed.

Trend Trading Strategy