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What is a Forex Trend Trading Strategy? How does it work?

skrimon

Active Member
The forex trend trading strategy or the trend-following strategy, depending on what you want to call it, is used by more than 33% of online foreign exchange traders.

It is one of the most well-known and widely used trading strategies in forex trading. It has an excellent backtested score and adamantium-level reliability.

If you follow the chain of orders, it's not that hard to figure out how everything works, from spotting a trend to making a solid, reliable plan.

Let's be like NASA and look into this even more deeply.

Overview:

You should follow the old saying "trade with the trend" when it comes to trading with trends. And we didn't just make that up!

There are a lot of reasons to believe this!

Well-known Forex experts say that the trend is your best friend. They are mostly right, but we all know that trends can change depending on how the market is doing. So you should also change.

Find out how to start using this method to get the green pips in the next part of this guide.

What Is a Forex Trend Trading Strategy?

It is a simple method that uses technical indicators to figure out which way the market is moving. It is based on the idea that some things can be seen coming.

A trader can figure out what might happen in the future by looking at how prices and trends have changed in the past.

Even though it's said that trend strategies are mostly for the medium to long term, the theory says that the strategy works with most technical indicators and time frames, which depend on how long the current market trend will last.

As for who should use it, it works best for position traders and swing traders, but scalpers sometimes use it when the trend is short and volatile.

Because the forex market is so big and full of money, you need to stick to the rules if you want to stay alive.

But if you don't understand the difference between position trading and swing trading, let's talk about it;

Position traders, on the other hand, choose to hold on to a trade for as long as the trend lasts, ignoring day-to-day changes. In swing trading, traders look for a trend and stay with it until it ends. But what is the risk versus reward of this plan? But first we need to figure out what the trend is.

Identifying The Trend


The purpose of the strategy is to help you spot trends VERY quickly and get out of the market before they change, so you can take your profits before anything uncertain happens.

The opening and closing prices of each candle, as well as its trading range, give traders a lot of information that they can use to figure out the direction of the trend in the future.

In this game as a whole, trade trends happen. The direction of the trend changes, which gives a new way to trade.

Theoretically, there are mainly three main trends: trends that go up, trends that go down, and trends that stay the same. Here is a bit more information about each of these factors:

Uptrend: It's pretty clear what this means! When a market gets bigger and bigger, this is called an uptrend.

And if a trader wants to take advantage of the situation (an ongoing uptrend), he or she would have to open a long position. Consider an example...


Sometimes the trend changes direction. When the share price of a company goes up by 100 points, then down by 50 points, then back up by 110 points, then down by 40 points, this is called an uptrend because it has higher highs and lower lows.

Overall, we can say it's a "bullish trend."

In the same way, a downtrend happens when the net volume of the market goes down (Bearish Trend). A trader must take a short position in order to profit from a downtrend. Here is a quick example of a downward trend:


A stock is in a downtrend when its price drops by 200 points, goes up by 100 points, drops by 300 points, and goes up again by 50 points (Bearish Trend).

This is because its highs and lows are getting lower. A bearish trend is another name for it.

Sideways Trend: A sideways trend happens when the market price doesn't go up or down; in other words, it stays the same for now.



The top trend trading indicators are:

Most of the time, the main trend happens and stays around for a long time. Due to their consistent use, traders have come up with several ways to find these main trends, one of which is the price action analysis part.

Still, using technical indicators is the most common way to trade with the trend.

Here are the most commonly used technical indicators:

  • Moving Average (MA)
  • Relative Strength Index (RSI)
  • Average Directional Index (ADX

Pros And Cons

Pros Of Trend Trading Strategy


Trend trading, also called "trend following," is one of the most popular ways to trade, according to many sources and comments. There are many good things about following trends.

Here are a few benefits of following trends:

Detect Trends


The huge pattern uses systems to figure out when a market has enough power to become a new trend.

The broker can be there for a long, smooth ride. As a result, brokers see the vast majority of important trends. They understood that a trend could last for a long time or even years.

Doesn't take much time

Trend following pattern is a trading structure that moves at a slow pace and can be used by people with regular positions.

You could put in your orders the next day after the market closes.


Trends are good for the long run; as we just said, crazy accuracy is not the most important thing. Whatever the long-term trend, it can help to make steady profits.

Lower Transaction Costs

Since this is a slow-moving indicator, transaction costs won't be a problem. This is a big advantage compared to many other trading indicators, like day trading, where transaction costs might even make some systems impossible to trade!


Cons Of Trend Trading Strategy

The trend trading strategy is just like any other strategy in that it has both good and bad parts.

Here are some problems with the trend trading strategy:

Trend Following Delays

Some people like to say that the tools used by trend traders are, for the most part, not very good.

For example, many trend traders use the moving midpoints of past highs and lows to figure out when a market will break out of its range and probably start a new trend.


Verifiable information about value is important for people who need to predict future price changes with a certain level of importance. Risk management is very important to keep up.

This is obvious, but we don't have to think of it as a burden. Most specialized instruments don't work well, but many of them do.

It's hard to follow the latest fashions.

Even though it seems easy to follow the trends until they end, that's not usually how it works.

When traders make a new trade, they never know what will happen on the market. It will be hard to stay on track without good risk management.

Lastly, if you want to wrap up one of the most-anticipated topics, "Forex trend trading strategies," it won't sound complete because there are still many questions to be answered because it has to do with the financial markets around the world.

Keep in mind that there are a lot of myths about trend trading strategies that you should know about.


This is how it usually goes:

  • The trend trading strategy is a surefire way to make money every time.
  • Making trend trading strategies doesn't take a lot of hard work.
  • The RSI indicator is the only thing that makes trend trading strategies work.


Trust me, all of the above facts are lies made up to make day trading and its glory seem less important. So, keep an eye on them, will you?

It's also true that learning will probably take some time and make you nervous, but it will be worth it in the end.

So, are you ready to take on the odds of the financial industry and master Forex trend trading strategies at the same time? Well, you better be!
 

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