Why the Trend Really is Your Friend

Filed under: Learn Forex Trading |

 

It is one of the most well-known sayings in trading: “The trend is your friend!”. If you have been trading for any length of time at all, you will no doubt be familiar with this expression. The saying is alluding to the fact that if you trade in the direction of the dominant trend, then you have a better chance of being profitable. It sounds easy doesn’t it? However, if it were, then everybody would be making money in the markets! (The interesting thing is, that it is theoretically impossible for everyone to make money in the markets – because there is always one loser for every winner, and vice versa. If everybody were following the trend, then nobody would be able to make a trade, because everybody would want to either buy or sell and there would be nobody taking a contrarian’s view. This is the very essence of the markets.)

 

In order to assess a trend, then are a couple of simple things that you can do. The first is to do a visual inspection of a chart. If it is moving upwards from left to right, then it is in a bull trend. Conversely, if it is moving down from left to right, then it is likely in a bear trend. If you need further confirmation, you can also use an 8-day EMA and a 21-day EMA. If the 8-day EMA is crossed above the 21-day EMA, then the market is bullish. However, if the 8-day EMA is crossed below the 21-day EMA, then the market is bearish.

 

If you can manage to only trade in the direction of a strong trend, then statistically speaking, you have a much greater chance of success because momentum is on your side. It is like swimming with the tide at the beach. If you swim with the tide, it is much easier. However, if you swim against the tide, things can get tough. It is much the same with forex trading. So if possible, try to stay on the side of the trend and you will have a much greater chance of success.

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