If you look at any currency chart you will see that they are moving in trends. Of course, these are easy to spot in retrospect. Of course, timing your entry levels and following these trends is harder and the goal of all forex traders, but 95% fail and lose their money.
If you use or want to use technical analysis, you need to know the basics of trend tracking and here are some tips to help you make a profit.
Let’s look at 3 types of trends and then look at some tips for negotiating them:
1. Long-term trends
Because currencies reflect the underlying health of the economy and the business cycle, there are currency trends that last for months or even years and this is the main trend.
2. Intermediate trends
These last for a few weeks and months and are reactions within the larger primary trend.
3. Short-term trends
These last a few days to a couple of weeks.
All of the above can be negotiated for profit and the trends you want to tend to depend on your personal trading style and taste.
Tendencies not to trade
Many of you may have wondered why we ignore daily and intraday trends.
The answer is that they simply cannot be traded.
While you can look at them in retrospect, one-day data is unreliable, as all daily and intraday volatility is random.
If the data cannot be used to get the odds in favor, you will lose when you follow the trend, with any form of technical analysis.
Tracking trends in very short periods is a cup game and that’s why you never see a daily trader with a profit history.
So how do you capture trends and come up with the best risk reward?
Well, this is the challenge for all FOREX traders and as we have said it is more difficult than most people think, which is why 95% of traders lose.
Here are some tips when trading forex trading to capture currency trends and turn them into profits:
1. Understand the concept of support and resistance and trade breaks.
It is a fact that most major market movements start from new market highs NOT market lows, so if you use breaks, you will understand the really important movements.
2. When buying support or selling resistance DO NOT predict
This is a major mistake made by novice traders. Then buy the bracket and “wait” it to hold.
When you follow trend, this is a good way to lose. You are predicting where, how you should act with the confirmation.
Always wait for a support test and use a momentum indicator to indicate a change of direction in your favor BEFORE entering the trade.
This will confirm that the support or resistance has been maintained and the momentum has been reversed, and then you will have the odds in your favor.
3. The differences between short-term and long-term trend Monitoring
The concepts are generally the same, but in my view there is a difference between following long- and medium-term and short-term trends.
With long-term and intermediate trends, you can track stops in the short-term trade, you need to use a target.
Because profits are smaller and move shorter in the latter, they can disappear quickly, so you should “hit and run” and bank profits when you reach your set goal.
When we do the above, we always set the goal lower than consensus.
If prices generally target a level and the market is looking for it, we will pay you soon.
Trend tracking involves being patient and staying on the sidelines until you see an opportunity that fits your methodology.
Don’t be in a hurry to trade – only trade when the odds are in your favor.
Capturing trends and reaping profits is difficult, but with the right approach and only trading when the odds are in your favor, you can accumulate big gains.