How to Trade Forex Trends Profitably

 
 
 
While we certainly don’t deride the use of indicators for identifying trends, there’s another resource you might be neglecting in your Forex trading strategies if you concentrate too rigidly on them: your ability to count.


Identifying trends


Ask yourself whether the currency pair you’re observing is trading higher or lower now than it was. If it’s higher, you’ve just pinpointed an upward trend; if it’s lower, it’s a downtrend.

The parallel question is: “Higher or lower than when?” Apply two filters: look at whether the price of a currency pair is higher (or lower) than it was (a) six months ago and (b) three months ago. The answer will tell you whether to look for short or long trades or to refrain from trading if the price movement is indeterminate.

A rule of thumb: a trend worth trading on will be over two per cent away from its price three months ago and further still from its value six months previously.

Picking entry points


A good moment to enter a trade is when a move against the trend (a “pullback”) arises. As soon as the price starts moving back in the direction of the trend, enter. For example, wait until the price hits a new 24-hour dip in an uptrend or a new 24-hour high in a downtrend. Wait four hours until the price starts to head back in the direction of the trend and then hits a new four-hour low or high. That’s your entry trigger. Place a stop loss order just under the other side of the four-hour slot (wait for another four-hour price slot to hit another reversal into trend if the stop-loss gets triggered before you’ve entered the trade.)

But be careful: your entry needs to be triggered within four hours of the initial set-up.


Exiting

Aim for about twice the risk on every trade, then, when an obvious resistance or support area arises at approximately that distance from your entry point, leave.