Trends Within Trends

Filed under: Learn Forex Trading |

There are many ways that forex traders can tip the odds of probability in their favor, and one of these ways is to trade in the direction of momentum. If you are trading with momentum, you are in effect going with the flow, rather than against it. Going against the flow is like rowing a boat upstream – it is much easier to go in the direction of the current!

 

Now, as there are many different timeframes that you can choose to look at a forex currency pair on, you could get conflicting and confusing signals about which direction that momentum is going in. For example, on a daily chart, the momentum and trend could be up, but on a one-hour chart, it could be down. One of the ways in which you can tip the odds of probability in your favor, is to make all of the trends on the different timeframes line up in the same direction. For example, if the daily trend is bullish, and the 4-hour trend is bullish, and the 1-hour trend is also bullish, then you should only be taking long trades. You can assess the trend of each timeframe with some exponential moving averages. For example, if an 8-day EMA crosses above a 21-day EMA, then you can say that the trend is up.

 

So a good trading methodology is to look out for price action signals at key areas of support/resistance when the trends on the 1-hour, 4-hour, and daily charts all line up in the same direction. If you can take such trades, then in the long run, you should have the odds in your favor and therefore, you should make a tidy little profit. So try trading trends within trends. It is better than paddling upstream!

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