Forex Trending Strategy Methods for determining the trend
Trend trading is the main principle of a profitable Forex trading strategy. The call to follow the market can be found in the writings of the classics of technical analysis of many years ago. And now this approach is considered the safest and most profitable method of trading in any currency market. Why is it so important to open trend deals? How to determine its origin and extinction? Consider the answers to these questions in the article and analyze examples of trending strategies on Forex.
The benefits of trend trading in financial markets
Any trend is always at least twice the correctional movement. Accordingly, the main advantage of trading in the direction of the main trend is that with the correct and timely entry you will earn twice as much as when trading on corrections.
Given the fact that there are practically no tools that can accurately determine a trend at the very beginning, it is also safe to trade in the direction of the trend, because you will enter the market after confirming the start of movement in a certain direction. In the case of correction, you run the risk of significantly making the wrong entry when determining the market reversal early or entering late if you wait for a confirmation signal, since corrections usually do not last long.
Methods for determining the trend in trend strategies on Forex
The earliest way to see the beginning of an emerging trend is the Price Action methodology, according to which you need to enter the market when one of the reversal patterns occurs at a strong level of support and resistance. Consider the situation using the example of the formation of the “External Bar” graphic formation, which served as a reference point for a new downtrend.
The pattern itself is circled in a red rectangle in the figure above. As we see, before the formation of a figure, an uptrend dominated the market. After the formation of the candle, the body of which absorbs the shadow and the body of the previous one (external bar), a price drop began. At the same time, the fact of having a candle with a large body covering the body of the candle of the previous day is not a signal to the entrance.
In the example, the location of the figure is more indicative. It is formed at the top of the uptrend, that is, in closer examination to the left of the pattern you will not see the chart of the currency pair, since the formation is based on the top point of movement. This moment can be used as an integral part of the trend strategy on Forex, as well as a separate independent signal.
Other methods for determining the trend give a little late signals. So the trend can be determined by the direction of the Moving Average indicator or graphically. In both cases, it is recommended to enter the market at a time when the trend is already becoming apparent. However, if you are trading on higher timeframes, this point should not confuse you. Typically, trends in the period from daytime and above last a long time.