Forex trading is very unpredictable and surprising. But, that doesn’t mean that you can’t ride the wave of mystery to make the most money.
Many investors try to predict the highs and lows of the forex trading market. They wait for the currency pair price to fluctuate to make investments. However, in this process, most investors fail to notice a trend.
When you fail to understand a trend in forex trading, you lose out on a lot of opportunities that will make you earn profits. That is why you need to learn how to spot trends and make the most of them in forex trading.
What is a trend in forex trading?
In forex trading, when the price of an asset starts fluctuating, it is considered to be trending. This means that the price can be falling or rising, it is considered to be trending.
When you observe the raw price action, lacking any extra technical indicators, the higher highs and higher lows of the candlestick mean that it is an uptrend.
Conversely, a downtrend is when the price starts to fall with the candlestick pointing to lower highs and lower lows.
Forex trading is very volatile. It is also because the currency pairs are influenced by a lot of factors during the trading session. Many markets are ranging in tight values without much movement in either direction.
If you notice, most forex traders don’t prefer range bound markets as they are indifferent to strong moves. This means that they don’t offer high-profit potential as that of a trending market to traders.
How to identify trends in forex trading?
Trend identification is essential if you’re looking to maximize your profit margin. Experienced forex traders take the help of technical indicators like moving average to detect trends.
If you don’t want to use technical indicators, there are simpler ways of noticing forex trends too. For instance, if you monitor the price chart closely, you can tell if the market value is going up or down.
While the price chart is a great way to see if a trend is occurring, it might not be enough. With the help of technical indicators, you can find the best entry point to the trending market. Technical indicators also help you to time your exit properly. You can also get a glimpse of the trading volumes to confirm the trend’s existence.
Day trends vs. long term trends in Forex Trading
The foreign exchange market is a haven for both day traders and long-term investors looking to generate steady returns. Day traders are more inclined towards short-term trends to make trading decisions daily.
Whereas long-term trading investors look for trends that will spread out over weeks, months, or years to influence their investment decisions. Long-term traders look for a lot of factors that will influence their trading decision. These factors are usually driven by basic economic factors like interest rates.
Knowing both the types of trading is important for any forex trader looking to make wise money decisions.
Compare the top online brokers and click to open a demo account with them so you can practice trading trends.
Key Factors for noticing long term trends in forex trading
Long term trading is just as profitable and effective as short-term trading. The power of long term trend trading is exponential.
Short-term trading can be tedious and stressful. You have to think fast and act even faster to the movements in the market. Long-term trends provide safety and yield higher profits than any short-term trends.
Let’s go over things that determine long-term trends compared to day-trading trends in the forex market.
Analysis of Multiple Time Frames
Timeframe analysis is extremely important in trend trading. Traders who focus on long-term movements tend to monitor the higher timeframes to estimate the general market direction.
You can see the same patterns on the daily or weekly chart in a one-minute chart. This is because forex price trends are in the form of fractal patterns. So, as a trader, you can use the same indicators to detect trends in any time frame that you want.
Did you know that you can compare day-trading trends to long-term trends? By doing so, you can notice more opportunities that will increase your likelihood of successful trades.
You can exploit such an opportunity when the long-term and short-term trends are moving in the same direction or are aligned.
As a rule of thumb, remember the saying “trend is your friend.” So, that you can jump at the next opportunity to have a greater probability of success.
Multiple Moving Averages
You can use moving average indicators for seeing the individual trends for any time-frame. Also, using multiple moving averages on a short-term chart will help you detect short and long-term trends. This means you can use a single chart to find out both the short and long term trends even without switching timeframes.
To make the best out of multiple moving averages, here is a simple example. Use a 60-period moving average on a 15-minute chart; then, you can add a 200-period moving average to see the long term trend. This concept is so easy and simple that it can be applied across any time frame.
Comparing Relative Trend Strength
It is important to understand the correlation between the relative strength of short term and long term forex trends. Long term trends will have more influence over price than short-term trends.
To understand this, let’s consider that a particular currency pair is on a downtrend on a five-minute chart. However, it is in an uptrend on a daily chart. This means that the uptrend momentum of the daily chart will overpower the downtrend in the lower timeframe.
To have insight into future price movements, take into consideration the long term trends.
How to trade the trend in forex?
After identification of a trend, there are many strategies that you can employ to trade the trend magnificently.
Old-fashioned traders wait for a trend to confirm before dipping their toes into investment. If you want to follow this method, then wait for a resistance level to break, then you can have a smooth entry in the trending market. You can also utilize a trailing stop to make a good exit.
There is another approach that is very risky but offers higher rewards. Trading the retracements that are occurring during the trend is such an approach.
Generally speaking, the only way to trade a trend effectively is to predict the market movement. This will help you make substantial profits by waiting for a pullback and then make an entry. This approach works even if you’re late to recognize the patterns.
Your stops can be designed as per your risk management strategy. Anyways your trades shouldn’t exceed the risk-to-reward ratio of 2:1. So, even if you exit before the trend is over, you’re protected from any sudden reversals.
How is ‘Time’ a factor for long-term trends in forex trading?
Time is the most important factor in forex trading. Respecting the time and acting quick are some of the qualities that most forex traders possess.
When you want to identify long-term trends in the forex market, time is a huge deciding factor. Let’s see how you can use the time to your advantage and cash in on the long-term forex trends.
Time is a very crucial approach as a forex trader. In long-term trend trading, making huge chunks of profits requires that much amount of time to be put in. If you think short-term and long term trend trading is similar, you’re wrong.
Long-term trend trading is a whole different ballgame. Anyone can scalp and earn profits regardless of the market condition. But, you need time to develop a position in which you can make huge life-changing profits using long term trends.
Adapt To the Changes
Don’t try to beat the market. Keep adapting your strategy to the changes in the market. If you try to go against the market, then you’ll most likely decrease the probability of a positive outcome. Understand the price action and behavior of price in the market; this is the only way you’ll succeed in the long-term trend trading.
Keep It Simple
Simplicity is the essence of long-term trend forex trading. Keep it simple and follow the flow of the market instead of striving to beat it.
If you observe the price movement and other factors of the market, then you can make the most calculated decision. Just listen to what the market dictates and follow a strategy that you think is best.
Another important quality you need to have is patience. From waiting for the trend to be established to making sure the technical analysis strengthens your claims, learn to become one with the market.
To Sum Up
To succeed in online forex trading, following the trend is the easiest way to maximize profits and get higher returns. If you’re looking to follow trend trading in forex, then you need to have adequate patience and expertise in market analysis.
It is important to practice before you invest your money. We recommend opening a demo account with one of the top online brokers like IC Markets or XTB so that you can practice new strategies without risking your capital.