Forex Trend Trading and High Probability Setups

Filed under: Learn Forex Trading |

If you are interested in trading forex then you have probably already heard the phrase: “The trend is your friend!”. What this means is that if you trade in the direction of the dominant trend, then you are statistically more likely to have a winning trade. There are trading opportunities that go against the dominant trend, and these are usually at extremely strong areas of support and resistance in the market. However, for beginners, it is usually best to stick to trading in the direction of the dominant trend.

 

The easiest way of determining the trend is just to give your chart a quick visual inspection. If it moved up from left to right, it is probably in a bull trend. If it moves down from left to right, then it is likely to be a bear trend. You can confirm this by using a couple of moving averages (an 8-day exponential moving average and a 21-day exponential moving average is good on a daily chart). If the fast moving average (which would be the 8-day EMA if you use the above) is crossed above slow moving average (the 21-day EMA), then the market is bullish. If the fast moving average is crossed below the slow moving average, then the market is bearish.

 

Once you have determined the trend, you can then use levels of support/resistance and price action signals such as pin bars, inside bars, and engulfing patterns to enter the market. For example, if there were a pin bar in the direction of the trend that is bouncing off of a previous level of support/resistance, then this would be a perfect place to enter the market. Trading the forex markets is all about finding high probability setups so that over a long series of trades, your edge will play out and you will be profitable. In the short term, every trade is a gamble. So bear that in mind and always see the long-term picture.

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