Forex trading trend is being able to determine the long, mid, and short term trends on a currency pair direction. Defining the trend is important in order for the Forex trader to recognize what environment they are trading. Only by defining the trend is the trader able to know the current market structure as trending, counter-trending or ranging. Remember though that stating the trend is only part of the job forex traders must complete. Traders should also check: for filters which could hinder the trade, what they consider as the opportunity, their entry methodology and trade plan a decisive method of entering.
TYPES OF TREND-TRADING STRATEGIES
USING PRICE ACTION TO TRADE TRENDS:
This shows traders how such an approach can be built without the necessity of any indicators. Price alone is often enough to let traders know what they need to see to decide when and how they want to enter trades in the direction of the trend.
SHORT-TERM MOMENTUM SCALPING:
In this strategy, moving averages are used to grade the trend on a longer time frame, and a price action crossover on the shorter time frame is used to trigger in the direction of the trend. While this is constructed as a scalping strategy, traders can certainly substitute out the time frames with those suggested in the time frames of trading to make the logic of the strategy operable on a longer-term basis. The first thing to note is that by only trading in the same direction as solid trends, more than half the battle have been won. Trading with the persisting trend is more important than the exact entry strategy you use. Too often traders focus exclusively on the tricks of entry. Entries are important, but trading with the good trends is more important!
The best strategy to enter trades in forex is to wait for a pull-back (a move against the trend). Then, enter in the order of the trend once the price has begun moving in the direction of the trend. One way to execute this is to wait for the price to make a new twenty four hour low in an uptrend, or a new twenty four hour high in a downtrend. By definition, these will be pullbacks. One you have that new high or low, wait for the price to turn around back into the direction of the trend and make a new four hour high or low. This is the entry trigger. You can place a stop loss order just below the other side of the four hour chunk of price. Four hourswill be suggested as this seems to work well as a compromise between getting in early enough to have a fairly tight stops most of the time and important for achieving good reward to risk ratios but late enough for the movement to have been meaningful. Quite often, you will find that better entries tend to be from four hour price ranges that are at least as big as the average range of four hours of price action.
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.