Trend Following in Forex
The objective of monitoring or trend following in forex is to follow a market moving upward or downward. The strategy is based on the premise that markets are punctuated by large bull and bear cycles. And believe me, there are many times when this statement may be questioned. Nevertheless, the approach is still considered to be one of the most effective for trading.
When searching forex charts, one thing a trader always keeps in mind is the concept of trends. Currency pairs undergo upward or downward trends, and are far more predictable, and potentially more profitable.
But how do you recognize a trend that is worth the effort? There are several factors to consider.
The Basics of Forex Trends
There are some telltale signs that a currency pair is in a trend. Currency pairs that are on trend all have the same characteristics. If you see a currency pair that goes up and down but at rates that go higher and higher you're observing a rising trend.
And if you see a currency pair to go up and down but at rates that go lower and lower, you are observing a downward trend.
Usually it's as simple as that.
Let's dig a little deeper;
The time scale is one of the key elements to help you identify a currency pair on a trend. Some trends are mountains or valleys that are on a rise or fall over a period of several years or more, but if you are a short-term forex trader this is a trend that does not really interest you.
For this reason, it is good to know your timescale compared to your trading style, and only then can you try to find trends that fall within this time scale. For example, if you are a longer-term trader, you probably rather base your trading decisions on weekly ladders or even monthly, but for short-term forex you will want a time scale of one hour.
What you want to do, to figure out the trading puzzle is to choose a time scale that you can really study and know, and trade only on this time scale; then follow the trend.
Look at the trend in Different Time Scales
Once you have spotted a trend during your favorite time scale, it is time to observe this trend on other time scales. The general rule is to evaluate a trend over a time scale of 4 to 6 times higher than the scale on which you trade.
If you are trading on a scale of one hour, you should use a scale from 4 hours to predict your trend.
Draw your Trend Lines
When looking for trends in forex charts, it is often more efficient to interact directly with these graphs. Take a big red pen and draw lines; or use a virtual visual pen and draw lines that confirm that it is a trend that you see.
.Your trades will not always be perfect, but you'll be surprised how better your trades become just by trend following in forex..