Forex Strategy Tutorial: Trend Trading

Forex Strategy Tutorial: Trend Trading

Technical analysis strategy often seem difficult for newer traders that might not be mathematically inclined.  But the reality is that forex traders do not need advanced degrees in order to implement these tactics and strategies.  One of the most commonly used techniques in the trend strategy, which attempts to take advantage of the broad momentum that is usually present in the market.  This is something that applies to all financial markets — if there is a price chart that can be associated with the asset there is a form of technical analysis that can be used to trade the asset.

Trend and Momentum Approaches

According to recent reports from Juno Markets, trends are present in the forex market roughly 70% of the time.  This is significant because it shows that prices moving in a given direction tend to continue moving in that same direction.  Now, this does not mean that a trend will always continue in its current path.  No trend can last forever and there will inevitably be instances where trades placed in the direction of the dominant trend will still fail.  But this should not deter traders as there are still many ways of capitalizing on the trend and capturing gains that can be seen over time.

Trend trades tend to be longer term in nature, so if you are a day trader that has successfully implemented short term swing trading strategies in the past this might not be the appropriate type of approach.  But if you are a newer forex trader that has less time available to spend monitoring trades, then a trend trading strategy might be exactly what you are looking for in your career.  

The main advantage of trend trading strategies is that as a forex trader you will know that the majority of the market’s underlying momentum is in favor of your position.  This is not something that can be said for a contrarian strategy or a swing strategy as both of these require a reversal in the underlying trend in order to achieve profitability.  Trends can only occur if a majority of the market’s participants agree that prices should be moving in a specific direction.  So when we are trading in this manner, we can generally expect to achieve profitability in a majority of cases, as long as trade management techniques are also properly employed.