The trend in Forex trading is the price movement in a particular direction over a certain period of time. There are uptrends, downtrends, sideways trends, long-term, and even short-term trends.
The trends enable you as a trader to determine the direction of the price and open positions in the same direction.
Some Forex Trend Trading Rules to follow:
1: Give the trend some room to breathe
If you’re aiming to profit from trend trading, you’ll have to learn to be patient. Give the trend some time to shape and mature. A good way to profit from trends is to identify the trend, open a position while the trend is still tender and let your position run until the trend is exhausted. It doesn’t matter whether it’s in a day trading or position trade.
2: Follow a longer time frame trend
Whichever time frame you enter your trade from, always ensure that it is aligned with the longer time frame trend. Daily and Weekly charts are always more stable and lesser prone to fluctuations, unlike the Hourly charts.
When you know the overall trend of the market, you know when to enter and when to exit the trade. This is especially important for countertrend traders.
3: Identify trend zones.
Most traders make a mistake of drawing a single trendline when identifying the trend. Sure, trendlines do work. But to be even more effective, identify the trend zones.
Trend zones are regions where the price has bounced off more than two times. They help you to identify how strong the trend is, because the more times the price has bounced off, the stronger the trend is.
The Best Forex Trend Trading Strategies
1: Trend lines and Zones
This is the easiest way to identify Forex trends, and even newbies can understand it. Trendlines and zones are drawn following the slope, depending on the direction of the trend. In an uptrend, the lines are drawn below the price points to act as support while in a downtrend, they’re drawn above the price points to act as resistance.
2: Price Action
Price action trading, also called naked trading, is trading without using indicators. Almost all price action traders follow the trend as a part of their trading plan. By using naked charts, these traders are able to correctly identify when a trend changes direction and what are the best entry and exit points for their positions.
3: Elliott Wave Theory
Elliot Wave Theory states that the trend moves in 5 waves within its life cycle before it’s exhausted. The waves 1, 3 and 5 always move in the direction of the trend, while waves 2 and 4 are counter-trend waves.
Wave traders use the onset of wave 1 as the entry point for their position, and most of them exit when the trend shows signs of exhaustion at the end of wave 5. Once wave 5 (the longest wave) is completed, the market may consolidate for a while before the trend changes its direction.
How to build a successful trend trading system.
To have a successful trading system, first, identify the time frame that suits you. Among other things, your trading plan should also incorporate answers to such questions as your appetite for risk and key signs of when to enter and when to exit the trade.
Some of the popular indicators used in Forex trend trading include EMA and Fibonacci numbers. EMA 50 is used to identify a mid-term trend, while EMA 200 is used to identify the long-term trends.
The key to a successful trading system is patience, discipline, and a well-analyzed trading plan.