If you have been researching the internet in a bid to find the right strategy for profiting from foreign exchange rate fluctuations then it is likely that you have come across trend trading more than a few times.
Trend trading is easily the most popular method of profiting from foreign exchange rates in the forex market. Moreover, most new forex traders are also advised to use this strategy because it is fairly simple to understand and implement.
However, this does not mean that it is a piece of cake either. You will still need to keep certain things in mind while implementing foreign exchange rates trend based trading. Consider the following.
Learn To Recognise Trends
How can you hope to profit from trend trading unless you know how to spot a trend on your charts? Therefore, the first thing you need to learn how to implement trend trading in the forex market is to identify foreign exchange rate trends on your forex charts. The majority of trend spotting techniques is fairly easy to learn but you will have to make sure that you know them like the back of your hand to prevent mistakes.
Use Multiple Time Frames
The best way to implement foreign exchange rate trend based strategies is to use multiple time frames. There are two reasons for this. The first is that the use of multiple time frames will allow you to verify certain signals and the second is that the full trend would only be visible to you if you use charts based on multiple time frames.
All Trends Have Retracements
You should know that all significant trends in the forex market will have retracements built into them. Retracements are basically periods in which the foreign exchange rate movements retrace their steps to a lower point before pushing on even higher. If you can incorporate retracements into your overall strategy then you can save yourself from a lot of pointless grief.
Keep Things As Simple As Possible
Trend trading depends on the analysis of foreign exchange rate movements and is a simple concept where all you have to do is spot which way the rates are moving and ride them. Such strategies do not require over complication and are best when kept simple. Thus, you should always aim for simplicity when using such strategies.
Place Stop Losses Behind Retracements
Your trades based on your analysis of foreign exchange rate trends should always carry with them stop loss orders to prevent sudden turnarounds from catching you by surprise. However, the placement of these orders should incorporate retracements so that they allow retracements to take place without causing them to be stopped out.
Hold Trade Through Retracements
The reason why keeping stop loss orders behind retracements is important is that you need to hold your trades through foreign exchange rates retracements because the rates would turn again and follow their earlier trend to higher levels. Thus, by holding through retracements, you are ensuring much larger profits.