Forex trend is an integral concept of technical analysis that provides information about the general direction of the market. A trend can either be a long-term or short-term, depending on economic, sentimental and other fundamental influences. Trading along the trend is one of the safest ways to trade and a great forex strategy for maximizing profits. In theory trading with the trend is the classical remedy for trading profitably. When anyone starts out with trading, they quickly discover a commonly used wisdom that traders make most of the profits when they trade with the trend.
One of the major difficulties in trading trends is that by the time the trend has been established it is often too late to enter a trade. Whilst trends are simple and appear obvious looking retrospectively at forex charts, they can be difficult to enter early and also very difficult to exit in real-time trading situations. Becoming involved early in a forex trend relies on entering with a signal that the market is either going to continue in its current trend or reverse to form a new trend.
Trending markets tend to make strong moves in the direction of the trend followed by periods of consolidation or a counter-trend retrace before the next leg in the direction of the trend. You will notice this pattern happens in almost any trend you can find. Typically, what happens to many traders is that they will make some money during the periods of strong directional trend movement, but then they continue to trade as the market takes a breather from the trend and consolidates. It’s these periods when traders give up all of the gains they just made when the market was moving aggressively.
Trends in forex tend to differ from those in other markets, especially equities. In forex, bearish and bullish trends are typically equally as violent and potent…whereas in equity markets we tend to see slower moving price action in a bull market, along with lower volatility. Down-trending markets tend to be fast and volatile in equity markets. Forex trends tend to be the same in their volatility and price action whether the trend is up or down because it is one currency against another in any given currency pair and this results in more balanced price movement.
The best trends to trade with are the trends that are both strong and obvious. These are the trends that when you flick to the chart, you straight away notice price moving strongly either higher or lower. If you are unsure if there is a solid trend in place, the chances are that price is not in a trend. If the trend is strong and obvious a five year old will be able to point it. These simple trends that stand out are the trends that often produce the biggest winning trades with the lowest risk.