A trend is a common dominant direction of a market or a certain asset. If the daily chart for EUR/USD shows an upward trend, it means that the pair moved up during the certain day, and more likely it will continue moving up further.
Trend Trading Forex Strategy.
Trend trading has a long history. Richard Dennis is a famous author of several trend trading strategies. Although he didn’t invent the trend following technique, he is best known as representative of this approach.
A famous Forex trader John Henry, was always trading using the trend trading strategy and as a result he has become so rich that he bought his favorite baseball team Boston Red Sox. I traded Forex using the strategy of trend trading for about 18 months, and finished up with profit.
Are all rules of the trend following strategy work? – Yes of course. There are many Forex traders in Singapore and other parts of the world who made hundreds of millions of dollars by following these rules. However, there are other rules of trend following, except those basic steps that you can find in any Forex For Dummies guide.
Let’s say you have a set of rules of a Forex trend strategy. What’s next? If the rules are so easy to find in the internet, why not all traders win? What distinguishes a successful trend trader from a loser?
These trading tricks are also not a secret.
Everything you read in this article is probably available in other sources as well. But here I will try to put together the most important elements of a profitable trading system based on the following a trend. I’m not going to talk about the rules of entry and exit of the market, you can find them in different articles, Forex guides and forums.
The tips and tricks, which I want to share here, are exactly what help me win in the Forex market and what makes a difference between successful trend traders and the losers.
Trick 1: Check everything very carefully before you start trading.
Most people completely ignore me when I talk about the importance of testing. When I train beginners, most of the time I’m helping them correctly test the strategy they are using. In order to understand how the strategy is working before you starting trading with it on a real account, you should test it on a demo account first. Don’t even think about starting using a trading strategy on a real account if you didn’t test it before.
What is a test? Testing a Forex trading strategy means that you develop a few simple rules for trading and apply them in your demo account. Then you analyze the historical data of your trading to see how these rules are working in the past 100 transactions. You need minimum 100 transactions for a good test of a trend trading strategy.
Think this way: if you are not confident with your Forex trading strategy when you trade, means that you do not know if the trading technique you are using is working and if it will bring you profit. If you are in a doubt, you need to do some testing, as a result you will get a better idea of what might happen after you make a series of transactions according to a certain trading strategy.
Trick 2: Be focused on what you are doing.
Learn to focus on one thing at a time. Diversification – it’s not bad for your life. But it is bad for your career.
Let’s look at a few examples. Think about the best doctor you know. Does he or she work with a specific subject or runs in a variety of directions? I think you’ll find out that this person is focusing on only one area of activity: it can be either a cardiologist or radiologist or a dentist, but not all of them simultaneously.
Top professionals are experts in their field. Why should you be different from them? You do not want to put all eggs in one basket? If you do not want to devote your entire life to Forex, and you wish to diversify your assets, you can invest part of them into shares, stocks etc.
But if you wish to trade Forex for a living, you should focus your attention on one currency pair, one strategy, one trading plan, etc. Remember: if you start from concentrating only on one currency pair, a day may come when you become a leading expert on this currency pair.
Everything said above is related to the trade trading as well. It is a key to the success of any trader who trades Forex following the trends.
If you decided to try the trend trading system and focus only on this trading approach, it means, for example, that you can devote some time every day to analyze 50 historical transactions. And it means that you first choose only one currency pair, to work with, and only one time frame. And you will become an expert in the trend trading for this pair, and in the certain time frame. Once you trade enough time and analyze about 1,000 trading transactions of the trend trading approach, you will become an experienced expert and will start trading profitably.
Trick 3 Different trends in different time frames.
The EUR/USD can go up on a daily chart, but in a 5-minute graph it can go down. Is this possible in reality? Yes it is possible.
Imagine that on a daily basis, in the long term, the pair moves up. However, in terms of a more short-term perspective, we can see a clear move in the opposite direction. So remember, if you want to be a trend trader, you have to choose to follow a trend on a certain time frame.
If you are working in addition to Forex trading, you better focus on the daily and weekly charts. These trends are usually longer, but they bring big profits, sometimes even exceeding 1,000 pips.
If you have an opportunity to trade during a day, you are better to trade on short-term charts. I recently tested the new trend following system that works even on a 1-minute chart!
Trick 4: Trading with a trend Forex strategy requires courage and intelligence.
If you want to be a successful trend trader while trading Forex in Singapore, you have to focus on catching the big trends. You cannot do scalping, for example, to get 10 pips on each trade. With a trend trading technique you need to get from 50 to 500 pips per trade or more.
To achieve this, you need to prepare psychologically for a long process of trend development and waiting. Most of the currency traders prefer short-term frames. However, in small time frames there are many swings up and down. I am sure you have noticed that after the release of important economic news a currency pair moves in the direction you predicted, but then suddenly changes its direction.
Let’s take as an example a report of the Non Farm Payroll. The released value was lower than expected, or in other words, “poor”. After that, the American dollar suddenly went up! It confused a lot of traders. What should you do? This is a great question. And the answer is very simple: a trend is more dominant element in the Forex market than the news release.
Let’s look at the hourly chart of GBP/USD. The trend has been downward. After the publication of the news the currency pair went up, but soon the trend continued.
As the graph shows, a small “spike” up was only a small episode. It was a small growth of the chaotic market after the publication of the unemployment report in the United States. Thus, the news is not always influence on a trend. But the opposite is also possible. An important economic indicator may signal a trend reversal. But in this case nothing happened. A previous trend continued, and we can trade with full confidence in the direction of the dominant trend.
Another important element in a trend trading strategy is a so called “smart money”. This means that you should not risk large amounts on a single trade. You can be thrown out of the trend, as in the example above and bear a large loss before continuing trading in the direction of the trend.
A trend can go against you, and you must be brave enough not only to keep the position open, but also you need to have a sufficient amount of the deposit to withstand temporary losses.
I am sure you are familiar with a situation where you had a potentially profitable trade, but could not hold the position open because losses become very large. Means that you hit the stop loss just before the beginning of a strong movement in the market. In order to avoid such situations, you need to trade with smaller amounts.
Trick 5: TV and people are tend to make mistakes.
Be careful when using the news media. Especially when the commentators on CNBC and Bloomberg say that “the trend for the USD is definitely upward” or “traders and investors are closing their long positions on the USD, because the trend is ready to turn down.” These people do not trade on your account! They do not know at what time frame you are trading, and what trading strategy you are using.
Over the past 4 years I have worked with more than 1,060 traders from all over the world. Most of them are often missing very good trades because they are getting scared by comments on TV, in internet or simply “good” friends.
I do not advise you not to watch business news, I just recommend to be more careful in the analysis of information obtained from external sources, especially if it can affect your trading plan.
You can find a lot of rules for entering and exiting the market. The rules of the Forex trend trading strategy are very simple and easy to understand. The hardest thing is to do the small things correctly, that many traders don’t even pay attention on. I think that the most important thing in Forex trading is the discipline: in testing, trading and capital management. In this lies the secret of Forex trading success.