Trading the Trend
If you’re new to Forex trading, then trading with the trend is a much safer bet to engage in the capital markets and maximize profits. Forex leaders use strategies in trend trading as one of their main approaches to the markets.
What is a Trend?
What is a trend exactly? A trend is the behavior of a price, either an overall decrease or increase in exchange rate. A currency pair trends when it is either increasing or decreasing for a longer period of time. Trading trends come in different forms.
Some are like channels with lower and upper parallel trendlines while other have just one trendline. It’s important to remember that because the market is based on human activity, the trends are not always going to follow symmetrical lines. When you are trading, you need to react to the market actions.
Following the Trend
Beginners often think that following trends is easy: you simply identify the trend and get ahead by going in next to the prevailing price action. But, in reality, it’s much more complex than it appears.
First up, we need to be sure it is actually a trend rather than just a retrace. Secondly, have you spotted the trend early enough or are you too late to get in on it now? Lastly, is it worth the risk?
In terms of whether or not a new trend is forming, it’s important to wait to ensure that the trade sets up properly and breaks certain levels. If you don’t wait, you might end up getting in at the end of a retrace and end up being stung by a price reversal.
Things to be aware when trading
Those who are daring catch new trends early. In doing so, they get ahead of the price action before it is defined. Knowing a trend does help you to get ahead. However, you must exercise caution as trends come in waves. These waves are called impulse waves or corrective waves. Impulse waves are waves that follow the trending direction. Corrective waves are the opposite and going against the trend. If you count the waves, or the pivots in a wave, it is possible to anticipate if a trading opportunity will be buck the trend or follow it. One theory suggests that an impulse wave has about five swings whereas a corrective wave has about three.
If you combine the moving average with the number of pivots and analyze and observe further, you can make a successful trade at the right time. But, remember that this is a well-practiced craft. It takes time and effort, as well as patience, to ensure profitability. So you have to be very careful when you follow trading trends. Here is a list of forex brokers to get you started.