The Benefits of Going With the Trend

Filed under: Learn Forex Trading |

For today’s forex-related topic, I would like to explore the benefits of going with the trend when you are trading. Momentum is a very important criterion for success in any field. In the world of sports, when a team is winning, it seems to be easier for them to keep winning somehow and it is very difficult to explain. In the world of forex, thankfully, momentum is much easier to quantify as we have hard data to work with and it is much less subjective (although there is some subjectivity involved in trading).

 

A good way to make sure that you are trading with the trend is to use moving average indictors. An exponential moving average does a good job. I like to use a 21-day EMA and a 126-day EMA, as this is roughly a one-month and a six-month average on a forex chart. So if the 21day EMA is above the 126 day EMA, we are in an up-trend. And conversely, if the 21-day EMA is below the 126 day EMA, we are in a downtrend. Please beware that sometimes the moving averages will be chopping and changing if the market is moving sideways – so you must also use your eyes to confirm the trend!

 

Once you know which way the trend is moving, and this can be on any timeframe, you can make sure that you only put trades on that go with this trend. The aim is to try to hop onto a trend a ride it for a little while before hopping off again. Inside bar breakouts provide a good strategy for this when using candlestick charts. And of course, there are many other methods and strategies that you could employ. So remember, “the trend is your friend!” Keep this in mind, and you will tip the odds in your favor straight away.

 

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