Forex trend trading

In forex business one can make some money by keeping to some kind of investment strategy. There are many different currency trading strategies – forex trend trading, range trading, and even automated currency trading systems, though I do not rely on the latter much.
Trading method or strategy is usually very personal trader thing, developed through years, sometimes having to suffer big money losses and draw downs. Still, once it is proved to be working, bringing consistent profits in a volatile and ranging or trending market and tested in time period of at least 1 year and more – you might stick to it and develop it further.

One of the most popular trading method or strategy, or sometimes just a part of strategy is forex trend trading. Why is it so popular, you might ask? Well, trend is a continuous price movement in one direction, when higher highs indicate upward price trending (long) and lower lows indicate the downward price movement or down trend. As the momentum increases, the future movement becomes highly predictable, which makes it so atractive to forex brokers and traders.
The trend trading strategy is the analysis of the price momentum in a particular trend direction and trade entries following that direction. To put it simply – sell when the price is falling and buy when it is rising. The main problem here is identifying the trend in a particular time frame, trade entries and exits and money management.

It’s not that hard to do if a trend is already in a halfway. It’s much harder to identify it at the very beginning – when the former trend has finished or the price ranging exhausted. There are few things you have to bear in mind:

Moving averages. When 200, 100, 50 or smaller periods’ moving averages start to cross and the price movement is already higher or lower than all the moving averages – it’s a signal of a new trend, especially in bigger time frames (1 hour, 4 hour or daily chart).

Price channel lines. When the channel lines of old trend are broken, it’s a signal that the trend might be exhausting and new price movement is on the way.

Resistance and support. In case of a new downtrend, the highest low of a previous uptrend is broken.

These are one of the basic signals you have to bear in mind when looking for a new forex trend.

The first thing that we have to do is decide, whether we want to trade in a 5 minutes chart or time frame or in a weekly time frame. Forex trends occur and may last for 5 minutes as well as 1 or more years.
Different chart time frames might show completely different trend patterns. If a weekly chart shows upwards trend, a 4 hour chart might signal for short entries. You have to choose the main trend time frame and select smaller time frame chart for better entries. Do you like forex scalping or long term trend trading?
Anyway, choose your time frame, because the same principles of trend trading apply to all time frames. I personally would rather choose 1 hour and 4 hour charts to trade and smaller time charts for entry signals.

1. In a new down trend market (look at the picture) trade entry is placed when all the forex indicators confirm it. If they do, after the breaking of the highest old trend low or the support, the price usually retraces to a former support (present resistance). After it reaches the resistance line – short trade is placed. Stop losses can be placed above the previous peak to gain more protection against false movements. Check the attached picture.

2.  You can also enter new trades as the trend accelerates, while keeping the old trades on the move. I like to use 123 trading techniques, the breaking of the lowest low in the attached picture. It is an excellent example how you can add more profitable positions. It also depends upon your money management.

3. Currency short trades can also be placed according to the trend line. When the forex trend correction appears, wait until the price touches the trend line. Then place trade entry (following the trend) with the stop loss above the last high.

Principles of trade exits are the same like trade entry, only the opposite. Also, some of your positions will be closed sooner than the trend ends, just to protect your gains in case of some volatile reverse price movements.
What I like in trends is the possibility to increase the number of your profitable positions and the big probability of more future gains if you keep your positions long enough. On the other hand, do not over keep them – this way you will only see the profits disappearing in front of your eyes and losses appearing. And finally - do not play against the trend. It’s always better to follow the forex trend, because trend is your friend, after all.