Trading in the direction of the trend is one of the major foundations of successful forex trading. “The trend is your friend”
We’re sure that you’ve heard that old saying. It might get a little tiresome to hear little clichés like that, but they truly are said for a reason. Because they work!
What is Forex Trading with the Trend?
One clever way to think about forex trading in the direction of the trend, is to think of yourself going for a kayak in strong river. Why on earth would you want to put yourself through the pain of paddling against the wind and current when you could have just travelled the same distance if you had started at the other end and followed the current? You might make headway against the current, but all your hard work can so easily be undone as soon as you stop.
The trend in forex markets works exactly the same way. You might make lots of small profitable trades by going against the overall trend, but if you get something even slightly wrong, the market can take back all of your profitable trades and then some. On the other hand if you followed the trend, even if you took losses, they would not be as large as the bigger runs when you were just letting the trend do the work, taking your position further and further into the green.
How do I Determine the Forex Trend?
Many new traders ask questions like what is the trend, or how do I know which way the trend is running. You’ll find many techniques online from simple trend line drawing tools all the way down to the most complex of indicators to attach to your chart. But the funny thing when it comes to forex trading in the direction of the trend, is that all you really need is your eyes and half a brain.
Open up a clear chart on your Vantage FX MT4 platform and focus your eyes. Does the chart slope up from the bottom left to the top right, or does it slope down from the top left to the bottom right? If it’s the first one, then you’re in a bullish trend and should be looking to take long positions on any pullbacks. If it’s the second one, then you’re in a bearish trend and should be looking to take short positions on any rallies.
It really is as simple as that!
Forex Trading Trend Strategy
One way to take advantage of a trend is by using trend lines to follow price moving between horizontal support/resistance levels.
Step 1: Determine if the forex market that you’re trading is in a bullish or bearish trend. You can do this by simply identifying if the market is moving up or down by eye, or you can draw in the most obvious trend line or channel.
This is the Direction in which you’re going to be taking your trades.
Step 2: Draw in the major horizontal support and resistance levels. Use the line tools in your Vantage FX MT4 platform and customise them to your liking. Use thicker lines for the most important levels and thin lines for the rest.
These are the levels that will determine whether you’re opening or closing a trade in the direction of the trend.
Step 3: Now it’s time to start trading. If the market is in a bullish trend, then whenever price pulls back close to one of your support levels, then you’ll look to enter the trade and ride it up the trend line until you reach the next level of resistance.
By following the trend, even if you don’t get your entry levels spot on, you are giving yourself a better chance of taking profit from the trade because the market is moving in that direction anyway.
Forex Trading with Vantage FX
If you’re using a trend following forex trading strategy to trade the markets then open a live account with Vantage FX and take advantage of a selection of trading platforms to always stay ahead of the pack.
Smart traders make smart decisions. Trade forex with Vantage FX.