Trend trading attempts to spot and take advantage of trends in the market. It is a strategy utilized by traders on many markets, not just the forex market. When prices are moving in a certain direction, they are likely to continue to move in that direction. Sometimes there will be small fluctuations up and down, but the price will still – seen over time – follow the trend. Of course, the trend will not last forever. It will eventually be replaced by a trend in the opposite direction.
When we talk about trend trading, we normally talk about comparatively long-term trends and not the short-lived trends used by swing traders. Long-term trend trading is popular among forex traders that are unable or unwilling to continuously monitor the market. With long-term trend trading, you can make money from FX trading while still maintaining your day job.
Contrarian traders, and many swing traders, rely on trend reversals to make money. With long-term trend trading, the opposite is true. You make money when there is no trend reversal. “The trend is your friend”. By aligning yourself with the trend, you align yourself with the momentum of the market.
If you are relying on trading signals, filter them and only make buy and sell decisions based on signals in the trend direction.
Choosing a currency
With so many currency pairs to chose among, the novice fx trader should ideally pick a pair that is exhibiting a strong and clear trend. When you look at the chart for a currency pair, look for a series of higher highs and higher lows to spot an upward trend. Higher highs that aren’t combined with higher lows only indicate a volatile market, not a strong upward trend. The same is true of you are looking for a downward trend to exploit. A downward trend is characterized by lower lows and lower highs.
It’s all about finding out in which way the price is moving over time and not obsess about small fluctuations up or down. Trend trading will never guarantee that 100% of your trades will be profitable, but it can help you boost your money making skills.