View Full Version : Trend is Your Friend

06-27-2013, 12:28 AM
It is very important to identify and understand a trend in Forex because they tend to be vicious and one way. Forex trends routinely wipe out speculators like you and me who commit the trading sin of trend fading. Forex trends start slowly and are usually the result of another action in the global capital markets. A booming stock market may lead to a massive Forex trend in its wake as an example. Similarly, global recessionary fears may force investors to take refuge in save haven currencies like dollar in their flight towards safety. Likewise, anticipating decrease in interest rates will take carry traders to risk aversion.

So you will have to keep one eye on the macro situation to look where smart money is flowing. As trends in currency markets are fundamentally driven by the flow of smart money. The longer the trend is going to be, the longer the correction and the consolidation will be. In other words, fundamentally driven trends do not take sudden U-turns. But when the general public realizes that a trend has developed, it is always too late for them. Professional traders and hedge fund have long been in the trade and are ready to dump their positions on the retail crowd. Don't forget the saying: a Newsweek cover is a kiss of death for a trend.

Trends are important for a retail trader to understand. Remember trend is your friend. Trend trading is one of the most popular trading strategies employed by professional traders including hedge funds. The best strategy is to take a position in the direction of the trend. You can easily identify a trend in currency markets using multiple time frame analysis involving moving averages. Once you have identified the trend, use Fibonacci retracement levels to enter and exit the position. Always put stop losses. If you successfully make a trade, you can make many pips in a few days.