Trading with the Trend

Filed under: Learn Forex Trading |

You’ve probably heard it said many times before – “The Trend is Your Friend!”. Well, in forex, there is a good deal of truth in this statement. Many traders like to trade with the trend (rather than against the trend, which is a contrarian approach), and this could be on a long term or a short term timeframe. Regardless, the theory is the same whether it is a short term timeframe or a long term one. If you can get on a trend and ride it just a little way further, you will make good profits. The problem is, first identifying a trend, and then finding a good value price to get in on the trend and ride it a little way further.

 

There are many ways that traders can identify a trend. Perhaps the quickest and easiest is to use some kind of moving average, which can easily be seen on your charts and read. By doing this, you will be able to see if the market is in an uptrend or a downtrend, and you’ll also be able to see how strong this trend is.

 

Once you know the direction of the market, you need an entry. This could be a retracement back to the moving average, or it could be by using Bollinger bands, or stochastic, or even a Fibonacci retracement. My personal favorite is to use horizontal support and resistance lines in combination with price action signals. By doing this, you can enter some very high probability trade setups. Going with the trend merely tips the odds even further in your favor, and this is a game of probability rather than certainties. If we can tip the odds in our favor, then in the long run over a high enough series of trades, we should come out on top and be profitable. That’s it for today, and I’ll be back tomorrow with more forex articles.

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