How To Take Advantage Of Trends In The Forex Market

The trend is your friend. Experienced traders have heard this old adage many times, yet many forget this simple principle. Why? Simply because they expect ‘the trend’ to be a fast-moving and notable one. In reality, this rarely appears on charts.

The average trend may look instead like an ascending trading range. Yet, if you adjust your trades according to the direction of this trend (buying when the trend is up and vice versa), you are strengthening your edge.

In general, going with the trend is a instinctive way to increase the number of winning forex trades since the number of bearish daily candlesticks is greater in a descending trend and the number of bullish candlesticks is greater in an ascending trend.

How Do You Identify Trends?

First, take a look at the 200-day moving average. If the price is consistently positioned at one side of the moving average, there is probably a trending component. At this point, it is common for traders to align trades with it. However, do bear in mind that past performances of an asset is not a reliable indicator of future results.

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Knowing that trends transform into trading ranges at some point, smart traders often go with a trend while it is still active. There is no way to predict exactly how long a trend will persist (otherwise, you would become a millionaire very quickly), but a trader still has better odds of success sticking to trends than trying to catch tops/bottoms in an attempt to find a reversal.

This brings us to the next question. Should one only focus on long term trading  if he/she has a trend-based directional bias? Not necessarily! One can still trade during the day, keeping in mind the fact that current day’s price movements tend to gravitate toward the direction of a trend and building trades accordingly.

Below is an example of how traders can align intraday trades with a trend (GBPUSD):

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Top Tip: Work With The Trends

Employ trends in your decision-making processes. This is a very natural way to build valid forex forecasts and achieve positive trading results. Find instruments with charts located on one side of the 200-day moving average for a period of more than three months. See what happens if you solely trade in the direction of the trend. Again, bear in mind that past performances of an asset are not a reliable indicator of future results.