Forex Trend Trading - The Early Bird Gets the Cash
Trend trading is where the big money is in the Forex market. While there is money to be made in counter-trending markets, there is only so much that can be made when the market is essentially moving sideways.
Trading when the market trends is where there is the opportunity to make (and if you’re on the wrong side without a stop-loss, possibly lose) major money.
A market goes into a trend anytime there are more buyers than sellers or more sellers than buyers over a prolonged period of time. This trend can be with prices going up (more buyers than sellers) or down (more sellers than buyers). There is money to be made regardless of which way the trend goes, since all trading is done with pairs.
Figuring out the best way to trade trends involves knowing extensive technical analysis, so having a proven and profitable trading system helps immensely. Without a prove and profitable trading system, it’s very unlikely that over the long run, you will profit from Forex trend trading.
While there are all sorts of technical tools for analyzing trades, the simplest way to spot a trend, or what might be the beginning of a trend, is to watch and see if each time period’s high keeps getting higher, indicating the market is steadily trending up in price, or if each period’s low continues to get lower, indicating a downward trend in price.
If you decide to use bands to help your trend trading, remember that a basic rule when using bands is to wait and see when the high price penetrates the upper band. This is your signal that an upward trend is about to start. You want to buy when that price penetrates the upper band and go long, with a trailing stop loss. There’s a good chance the market will make an upward trend that a long position can profit from.
When the price penetrates the lowest band of your corridor, you want to sell and go short, watching the market for any confirmations on any further trends, counter-trends, or pivot points that indicate a trend reversal.
The basic goal of trend trading strategies is always the same. While you don’t want to be the first to test the market, once a market trend reveals itself: join the move early!
Then hold your position, making as much money as possible, until the trend reverses and then get out. This is where using a trailing stop loss can help maximize the profits you earn from any market movement.
Trend trading is where the big money is at, and recognizing and getting in on trends early will make you a very happy (and wealthy) trader in the Forex market.
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From Jason Fielder, Founder, ForexImpact.com