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Forex Trend Following

Currencies tend and this can be seen on any forex chart i.e. they move in a sustained direction for periods of time. The aim of any forex trader is to lock into these trends and turn them into profits. Doing it in real time simply requires learning the right forex education and technical tools to succeed.There are essentially three separate trends occurring in 3 different time frames that you have the opportunity to trade:

  1. The Longer Term Trend – These are the trends that reflect the underlying health of the country the currency represents. They reflect economic trends that last for months or even years.

  2. The Intermediate Trend – These are shorter term trends within the main trend and can last for a few days or for a few weeks.

  3. Daily Trends - These are short term trends that last for a few hours to a day.

So which are the best time frames to trade? Let’s find out.

Day Trading

While there are trends in daily time frames there only apparent after the day has ended. You have no chance of succeeding, by trying to catch these moves in live trading as - data within a day is unreliable and random. Support and resistance levels cannot be used, because volatility is random and prices can go anywhere.

You can’t get the odds in your favor and will lose if you try forex day trading.

There are millions of traders, trading several trillion dollars daily and it’s obvious that prices can move anywhere so don’t day trade!

Swing Trading

Swing trading is perhaps the easiest way for new traders to implement a Forex trading system. Your aim is to catch reactions within major trends which last a few days to a week.

Swing trading has the advantage of giving plenty of opportunities and you know if you are right or wrong quickly. Forex swing trading is easy on the mind, as you have obvious stop levels and finally, profits and losses come quickly. In swing trading you don’t have the pressure of sitting on long term trends, where you have to contend with big open equity swings against you in the short term.  

Long Term Trend Following

If you can get a forex trading system to catch and follow long term trends then you have the most lucrative form of trend following but its also the hardest form of trend following and far harder than forex swing trading which we just looked at

You will very often see trends that last for months or even years yet, very few traders have the mental discipline to hold and capitalize on these trends. Long term forex trend following requires considerable discipline and patience.

Why is it so hard to do?

The simple reason is, most forex traders are simply not mentally strong enough to accept big gains.

Don’t we all forex want big gains? Yes we all do, but accepting them is very hard.

The problem is the following: if money is important to you (as it is to most forex traders) then open equity swings against you, which eat into your open equity, can tempt you to exit a trade early.

Most traders of course feel pleased when they get a profit and the bigger the profit gets the more tempted they are to bank it, in case it gets away. As volatility swings eat into their open equity profit, the temptation to bank becomes too great for most traders and the bigger the open profit becomes, the harder it is not to take it. In the end, most forex traders simply bank taking an average or mediocre profit, when they could have had a far larger one.

If you are long term trend following, you need tremendous mental discipline to ignore short term swings against your position and keep your eyes on the bigger prize. Forex trend following is tough mentally but the rewards are huge, if it is done correctly and you have the right mindset.

New Trends & Turning Points

Catching turning points offers low risk and high rewards if done correctly furthermore as you are in at the stat of a new trend, these turning points normally see profits piled up quickly as the new trend emerges. Catching turning points is satisfying, very profitable, furthermore, as you are in at the start of the trend, you have the best risk to reward.  

The key is to WAIT for clear confirmation of a trend change, before getting on board. Most trend changes emerge after short term price spikes that are easy to see on a forex chart. As the price blows off, you can see it and act upon it, if you use the RIGHT technical indicators.  

Catching Trends for Profit

You really have a choice for going for the big long term trends, or you can swing trade shorter moves but never day trade!

The trends you go for will depend on your trading personality and both swing trading and long term trend following have there advantages. If you look at a forex chart, you will see trends and you can catch them – all you need is to act on the reality of price change and use a simple robust trading method.

Next we will look at a trend following system to help you catch these moves and enjoy currency trading success.