If you look at a chart of currencies you will see that they are trending. These are of course easy to spot in the background. Determining the time of your entry level and following these trends is certainly difficult and the goal of all currency traders, but 95% fail and lose their money.
If you use or want to use technical analysis, you must know the basics of following trends and here are some tips to help you make a profit.
Let’s take a look at the 3 types of trends and then here are some tips to trade them:
1. Long-term trends
Since currencies reflect the underlying health and economic cycle of the economy there is a tendency for the currency to last for months or even years and this is the initial trend.
2. Intermediate tendency
These persist from anywhere within a few weeks and months and respond within a larger initial trend.
3. Short term trend
These last from a few days to a couple of weeks.
All of the above can be traded for profit and the trends you want to be trending on depend on the individual trading style and tastes.
Don’t trade trends
Many of you may be wondering why we have ignored the daily and intra-day trends.
The answer is they can’t be traded easily.
Although you can see them in the background, one day’s data is incredible, because all the daily and intra-day volatility is random.
If the data cannot be used to get the odds in your favor, you will lose the time to follow the trend, including any form of technical analysis.
A mug game to follow the trend in a very short time and that is why you will never see a trader with a track record of profit.
So how do you catch a trend and enter with the best risk rewards?
Well this is a challenge for all Forex traders and as we have said it is harder than most people think – this is why 95% of traders lose.
Here are some tips to help you catch a currency trend and turn it into a profit:
1. Understand the concepts of support and resistance and trade breakouts.
It is true that most big market moves start from new market heights and not from market lows, so if you use breakouts you can take really big steps.
2. Don’t predict when buying support or selling resistance
This is a big mistake made by new traders. Then buy support and “hope” it will hold.
This is a great way to lose weight when you follow trends. You are predicting where you should act in confirmation.
Always wait for the support test and use a momentum indicator to indicate a change of direction in your favor before entering the trade.
This will ensure that support or resistance is retained and the motion is reversed then you have the odds
3. The difference between following long and short term trends
The ideas are generally the same, but there is a difference in my view between following long and medium term trends and short term trends.
With long term and medium term trends you can make a stop trail in short term trading you must use a goal.
As profits get smaller and later smaller, they can quickly disappear, so your “hit and run” and bank profit should meet your set goals.
When doing the above we always set less goals than consensus.
If the price usually targets a level and the market is looking for it, we will bank soon.
Following the trend involves being patient and staying on the sidelines until you have a chance to fit in with your approach.
Don’t rush to trade – trade only when adversity is in your favor.
It is difficult to catch trends and make a profit from them, but with the right approach and by trading when adversity is in your favor you can reap some huge profits.