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Are you a Forex trader who doesn’t have time to sit in front of a trading platform all day? Well, here’s an idea for you: Try your hand at trend trading. For one thing, trading trends tends to be a lot safer than other Forex trading strategies. What’s more, it provides better results in the long run. In this post we take a look at trading trends as a Forex trading strategy.
Why Is Trading Trends a Better Strategy?
When you base your Forex trading strategy around trading trends, you’ll give yourself more time to make trading decisions. Therefore, you’ll have better opportunities to collect more information about what is happening in the world as well as in the Forex market. This can minimize the risks to your assets.
Usually, Forex traders who trade trends make only a few trades each month. This is because they focus on capitalizing long-term moves in the Forex markets. These longer-term market shifts tend to be more stable. This is because they are less likely to be interrupted by news events of small importance.
Nonetheless, even traders who focus on trading trends need to have a good understanding of the technical aspects of Forex trading. A broad range of knowledge is valuable for every Forex trader, regardless of whether they’re trading trends or using some other strategy.
Learn to Understand the Market’s Technicalities
Many of the techniques traders have developed for trend trading come from trading in commodities. This is because commodities markets also tend to trend.
(As an aside, this is why there is such broad appeal among trend traders for commodity-based currencies. For example, the CAD, NZD, and AUD currencies are popular with Forex traders who choose trend trading.)
Additionally, many of the truisms that apply to trading commodities also apply to trading trends on the Forex markets. This is particularly the case with the law of supply and demand.
As astute traders understand, prices in any market fluctuate based on the demand for and supply of a certain asset. Therefore, commodities trend because of fluctuating imbalances between supply and demand in those commodities. In a similar fashion, currencies also trend. However, in the case of currencies, the supply comes from central banks, usually in response to economic conditions.
This is why Forex traders, in particular, need to watch world events. And Forex traders who base their decisions on trading trends, accordingly, must also keep a close eye on the sweeping cycles of supply and demand as they push prices up and down.
Here’s What to Watch for When You’re Trading Trends
For example, a currency pair will trend higher when there is more demand for that pair. Conversely, it will trend downward when there is a greater supply of that pair.
Naturally, the supply fluctuates because of the decisions of other traders as well as because of the actions of the central banks. For example, at any given moment, a certain number of Forex traders will want to sell, and a certain number will want to buy.
If all the sellers manage to sell, then only buyers will be left. In that case, the currency will trend higher at that time. Then, the market will start becoming attractive for more people to want to sell again. Accordingly, the pair will rise in price. At that time, more Forex traders will have made a profit with their trade, and they will choose to exit.
Forex traders who are trading trends look for disconnects between supply and demand. These are the critical moments that signal the start or end of a trend.
In other words, if you want to learn how to trade trends, look at how the Forex market behaves. Watch closely the number of trades as well as the speed at which the market is moving. Notice price fluctuations. All of these factors will give you insight into the balance between supply and demand.
Additionally, you’ll need to learn about a number of other technical indicators that will give you clues about the state of supply and demand in the market. All of them will help you develop your Forex trading strategy, whether it’s trading trends or another strategy.
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Other Indicators You Need to Keep an Eye On
The most basic Forex indicator for trend trading is a simple moving average. In other words, by averaging out the trades over a period of time, you can more easily identify whatever trend is taking place at the moment.
When it comes to trading trends, the most common indicator traders turn to is the Fibonacci regression. This is an indicator that’s based on a mathematical progression that is found in many places in nature. Additionally, a lot of people believe it is also found in the market. And because so many people believe in it, it actually comes true.
This indicator will help you to find support and resistance levels brought about when a lot of Forex traders put their take profit and stop-loss orders at a certain level. When they do this, they set off a new trend.
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Take Advantage of Trend Trading
You could choose to base your Forex trading on market technicalities alone. However, with trend trading, you’ll give yourself the advantage of having the time and opportunity to get as much information as possible about the market before you initiate a trade.
Regardless of the trading strategy you choose to use, however, you’re still going to have to give yourself a broad understanding of the Forex market in order to succeed.