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The forex trend trading strategy or trend following strategy, whichever you call it, powers more than 33% of the foreign currency exchange traders across the online trading sphere. With an exc...

Forex Trend Trading Strategy In 2022! An In-depth Overview

Forex Trend Trading Strategy In 2022! An In-depth Overview

The forex trend trading strategy or trend following strategy, whichever you call it, powers more than 33% of the foreign currency exchange traders across the online trading sphere.

With an excellent backtested score and adamantium (super solid) level reliability, it is arguably one of the most prominent and widely used trading strategies in forex trading.

Fortunately for you, the whole mechanism (from identifying a trend to creating a solid yet reliable strategy) isn't that hard if you follow the chain of orders!

Let's Be Like NASA And Drill Even Deeper Into This Aspect!

Overview:

Regarding trend trading, there's an old saying that you'll want to follow, " trade with the trend." And that's not something we made up!

There are thousands of proofs to back this up!

As per the widely known Forex pundits, the trend is your best friend. And for the most part, they are right, but we all know that trends can often change depending on the market circumstances. So, you should change too!

Later in this guide, discover how to get started with this strategy to extract the green pips!

 

What Exactly Are The Trends?

Theoretically speaking, the whole concept of the term "trend" is based on the idea of market predictions. Every market, whether it's psychical or virtual, has an element of predictability, and by analyzing all the present and past stats, it's possible to foresee future market movements.

As for the visual structure, trends often occur in diverse shapes and sizes. Some trends are channelled with upper and lower trendlines, whereas others have only one single trendline.

Note: If a trend takes place with a single trendline, then there will be a visible line that will act as a support in an uptrend and as resistance in a downtrend.

Moving on, there's something that you should stay up to date on: trendlines don't often follow a perfectly symmetrical appearance.

Wondering what the reason is? It's most probably the humane nature of the market!

Here are some of the questions that might arise while trend trading:

  • It's too late; should I get into this trend?
  • Is it a new trend or just a retrace?
  • The risk/reward ratio: is it worth the risk?

So, what are the answers?

You'll get a hold of them; just do some case studies and research before actually implementing it in your day-to-day trading.

What Is Forex Trend Trading Strategy?

It is a straightforward approach that uses technical indicators to determine the direction of market momentum. It is based on the idea of an element of predictability.

Using those ideas, a trader can forecast what might happen in the future by analyzing historical trends and price movements.

Though it's said that the trend strategies are mainly mid-to long-term strategies, based on the theoretics, the strategy is compatible with the majority of technical indicators and time frames, which depend on the longevity of the ongoing market trend.

As for the suitability, it is mostly adopted by position traders and swing traders, but once in a while, scalpers use the strategy too if it's a short and volatile trend.

Because the forex market is huge and for that liquidity, you need to survive by following rules.

However, if you aren't clear about the position trading and swing trading style, then let's get your concept clear on this;

As for position traders, they opt to hold a trade for the long duration of the current trend in position trading, ignoring day-to-day fluctuations. In swing trading, traders will identify a trend and ride it from start to finish. But what is the risk/reward ratio of this strategy? But before that, we have to know what the trend is.

Identifying The Trend

Forex Trend Trading Strategy In 2022 - ForexIntels

The strategy is intended to help you identify trends SUPER quick and exit the market before they reverse so that you get to pack the profits before any uncertain situation arises.

The opening and closing prices and the trading range of each candle provide traders with a bunch of information that can be used to identify the trend's flow later on.

Overall, the trade trends happen in this whole game. The direction of the trend change and creates a new trading direction.

Theoretically, there are mainly three principal trends; uptrends, downtrends, and sideways. Here is a little bit of a detailed overview regarding these factors:

Uptrend: The definition is rather simple here! Whenever a market increases in weight and volume, an uptrend takes place.

And if a trader wants to take advantage of the situation (an ongoing uptrend), a trend trader would have to enter a long position. If we look at an example...

Sometimes, the trend reversal occurs. When a company's share price rises by 100 points, falls by 50 points, then again rises by 110 points, and falls by 40 points, it's referred to as an uptrend since it assembles higher highs and lower lows.

Overall, we can say it is a bullish trend.

Downtrend: In the same way, a downtrend occurs when the market decreases in net volume(Bearish Trend). To benefit from a downtrend, a trader must enter a short position. Here is a quick downtrend example:

When the price of a stock falls by 200 points, then rises by 100 points, falls again by 300 points, and rises again by 50 points, the stock is in a downtrend(Bearish Trend).

This is because it is falling to lower lows and lower highs. It can also be named a bearish trend.

Sideways Trend: Now, as for the sideways trend, it occurs at the exact moment when the market price does not reach higher or lower price points; in other words, it stays neutral for the time being. 

Most trend traders will ignore these trends, but range traders or scalpers, who seek to profit from extremely short-term market movements, will be on the lookout for them.

Sideways trend trading opportunities are important while the market is neutral. While trading trends, you need to follow and understand all the types of a trend.

Top Indicators For Trend Trading:

Most often, the prevailing trend occurs and lasts for a long. Due to consistent implementation, traders have developed several approaches for identifying these primary trends, including the price action analysis portion.

Still, the most common trend trading strategy consists of implementing technical indicators.

Here are the TOP technical indicators that are often used:

  • Moving Average (MA)
  • Relative Strength Index (RSI)
  • Average Directional Index (ADX)
     

Moving Average (MA)


A moving average (MA) indicator, as the name implies, finds the average price of an asset over a given timeframe.

This produces a soothing effect on the price data, resulting in a single line that can assist traders in identifying trends.
 

There are popular options, such as the 50-day and 200-day moving averages, but the final decision will be personal.

Moving averages are lagging indicators that usually move more gradually compared to the natural momentum of the price movement.
 

Therefore, it's safe to say that MAs cannot be used to predict future trends but can visualize past stats.

Moving Average (MA)

The Moving Average is quite a helping hand for market traders as it showcases the price direction for confirming whether the market is moving up, down, or sideways.

If the current price point is above the moving average, an uptrend is likely to occur, and if it's below the moving average, then it's a downtrend.

The Relative Strength Index (RSI)


The Relative Strength Index often tracks price momentum in typical buy or sell circumstances. RSI handles this process by examining the average gains and losses over a period (typically 14) and determining a positive and negative ratio of the recent price movement. You can watch the trend line in the below image:

Relative Strength Index (RSI)

It's important to remember that the market can stay overbought or oversold for literally a long time (like a long time).

Another thing, the RSI does not always hint at a change in trend since the market's price momentum can often fluctuate in HIGH evaluations ( even exceeding the 0-100 range).

So, you get the IDEA, right?
 

On the other hand, a trend trader in a long position will usually use the overbought signal as a price point to lock in their profit and exit their trade. But sometimes, when trend reversals happen, it gets messed up.

Trend traders who use the oversold signal would do the opposite: they would use the oversold signal to exit short and open long trades.

Whatever, it's not a suitable option for the new trader as the margin carries significant risk.

The Average Directional Index (ADX) Trend Indicator


Online traders across the globe use the average directional index (ADX) to assess a trend's strength, whether up or down. Besides, the ADX line fluctuates between the 0 to 100 range.

Values below 25 denote a weak trend, while values between 25 and 100 denote a relatively strong trend, increasing numbers.
 

The ADX is frequently plotted alongside the directional movement index (DMI), which is made up of the -DI (negative directional indicator) and the +DI (positive directional indicator).

Average Directional Index (ADX)

The ADX line reveals the possible strength of the trend, while the other two lines solely indicate the approaching track.

Note: The direction of the trend changes when the trend direction influences by the market news. Sometimes, it turns in the same direction as the trend.

Despite disclosing all the facts and characteristics, still, on some points, the indicators stated above won't be 100 per cent accurate in terms of catching every strong trend.

On the bright side, this lacking can be used to your advantage in filtering out markets with the comparably weak trends.

Best Trend Trading Strategies

Forex Trend's trading strategy is excellent because its primary concept is uncomplicated and easy to understand, though the trading procedure must follow accurate disciplines.
 

As leveraged trading is undoubtedly risky, these strategies are super beneficial.

Following are the best trend trading strategies that I want you to know:

Bollinger Band Strategy


For this strategy, we'll utilize the Bollinger Band pointer (BB), the specialized marker made by John Bollinger around forty years prior.

We'll add an Exponential Moving Average (EMA) with the period 50, assuming a similar part to the 50 MA in our past strategy.
 

A few brokers like to go long when the cost varies over the BB's mid-band and go short when the money pair continues to move underneath it.

In any case, we'll add more conversion variables to get more robust signals.

Bollinger Band Strategy

Following are the standards for the bullish situation (the other way around is legitimate for the adverse market):

Cost activity is over 50 EMA. A bullish flame appears ok over the mid-band.
 

If the two circumstances are met, we check what is going on.

One model for a stop misfortune is to place it underneath the mid-band or the 50 EMA.
 

A few brokers might decide to leave when the cost contacts the upper band, and others hold on until the cost is pulled back from the upper band.

Ascending And Descending Triangles


Other than specialized pointers, a few unique methodologies depend on graph designs. The triangles are the most direct and intense pattern continuation designs, albeit not balanced.

The ascending and descending triangles propose that the current pattern will go similarly after a snapshot of strain among bulls and bears. It also works in the price action category.
 

For accommodation, we'll examine the ascending triangle, and you can involve similar standards for the descending triangle yet clearly with upset conditions.

Ascending And Descending Triangles

The descending triangle is shaped by a descending upper line and a level lower line.

So, the ascending triangle shows up when the cost shapes a level upper opposition line and an ascending lower trendline composed of better upsides.
 

Whatever, you need an initial investment to complete your trading journey.

Whenever you spot that the ascending triangle is in the arrangement interaction, it shows you the upswing observes solid obstruction from bears, which is reflected by the level opposition line. But be double sure to check the risk/reward ratio.
 

Anxious traders will frequently get in too early. However, hanging tight for an affirmed breakout might give a robust trading approach.

In that case, I strongly recommend following the trend trading strategy guide to overcome all those nasty situations.

Selected The Trading Market Yet?

Since you've already hopped on board with your desired brokerage company, the next step is to choose the biased trading market for yourself where you invest money to ensure consistent profits.
 

It's vital to have a plan before opening a position to decide what element to trade. Some trend traders may opt to concentrate on a single market.

Specifically, these instant spikes could include breaking news, bank announcements, and political plots, i.e.

Time To Start Trend Trading

To start trading immediately, you'll need to open a trading account since you can't access the foreign exchange market without registering with a broker.

So, a broker is a must!
 

PRO Tip: If you're starting in the industry, I recommend trying the demo trading accounts first since it's pretty well known that practice improves your skills. And... as for demo trading, it's all about practice. That's how your trading opportunities will unlock.

A thought might hit your brain hard, "How the hell I'm going to choose a broker from the literal sea of brokers?"
 

Well, you can always research, so there's that!

Also, the BIG names (I.C. Markets, FBS, Exness, InstaForex, LiteFinance, OctaFX, FP Markets, Avatrade, i.e.) are still dominating in the industry and are worth a try too!
 

Because they are regulated and their names engraved on prominent places like NFA, National Futures Association, or Commodities Futures Trading Commission.

You might lose more than you finance. I suggest you seek independent advice and guarantee you completely comprehend the dangers implied before trading. But always try to confirm a good reward ratio.
 

P.S: If you prefer underrated ones that are tightly regulated,

As well as offering feature-packed opportunities, my favourite pick is AssetsFX!

So, there you have it!

Pros And Cons

Pros Of Trend Trading Strategy

As per vast sources and feedback, trend trading, aka trend following, is one of the most popular trading methods. Trend following has a lot of benefits.

Here are the benefits of trend following:

  • Detect Trends


The huge pattern follows systems to distinguish when a market has sufficient force to make a recent fad.

The broker can be there for a long, refined ride. As an effect, brokers catch the overwhelming majority of critical trends. They accepted that trends could remain for a lengthy timeframe or years.

  • Doesn't Need A Lot Of Time


Trend following pattern is a sluggish-paced trading structure that can be traded even by individuals with regular positions.

You might submit your requests the following day after the market shuts down.
 

Trends foster the long haul; as we just said, outrageous accuracy is not a primary variable. Whatever long-term trend can be beneficial to cover up consistent profits.

  • Lower Transaction Costs


Being a sluggish-paced indicator, transactional costs won't be an issue. This is a considerable benefit contrasted with numerous other trading indicators, such as day trading, where transactional costs might even make a few systems untradable!
 

Cons Of Trend Trading Strategy

Every strategy has positive and negative aspects, and the trend trading strategy is no different from others.

Following, here are some cons of trend trading strategy:

  • Trend Following Delays


Specific individuals like to contend that the devices utilized by trend traders are, for the most part, slacking.

For example, many trend traders will utilize moving midpoints of past highs and lows to decide when a market will break out of its reach and will probably begin a recent fad.
 

Verifiable value information is pertinent for the people who need to anticipate future cost moves with some degree of importance. Maintaining risk management is super important.

This is evident; however, we aren't guaranteed to consider it a burden. Most specialized instruments are slacking, yet many functions admirably.

  • Riding On Trend Is Troublesome


Even though it sounds easy to ride the trends until you arrive at the end, that's not often the case.

Each time traders enter another trade, they never know how the market will create. Without proper risk management, it will be hard to stay on track.

Frequently Asked Questions

FAQs

Q.1 What is the best trend trading strategy?

This strategy is suitable for beginners because it's simple and provides accurate signals. Also, it uses the most popular technical indicator, which is the MA.
 

Q.2 What is the best trend indicator?

The average directional index (ADX) determines when the price is trending strongly. In a technical analysis case, it is the ultimate trend indicator.
 

Q.3 How do you know a bullish trend?

The bullish trend is characterized by heavy buying pressure exerted by the bulls. When there is a rise in the prices of about 20%, it is identified as a bullish trend.
 

Q.4 How can I get 50 pips a day?

The 50 pips a day Forex strategy is an overall strategy that works in single-hour intervals and aims at taking advantage of about 50% of a currency pair's daily movement.

This type of strategy also aims at working with a select few currency pairs. These pairs include GBP/USD and EUR/USD.
 

Q.5 What is the easiest forex strategy?

The pin bar is king when it comes to Forex trading for beginners.

This is because it's a very obvious pattern, making it easy to identify on a chart. It's also one of the more straightforward strategies to trade.

Notice how the market came into resistance during a rally but was soon able to break through that resistance.
 

Q.6 How do you know when a trend is ending?

When looking at a trading price chart, you can call the end of a trend by using the MA level rule: an uptrend when the MA today was less than the MA yesterday, and a downtrend when the MA today is higher than yesterday. A MA always lags the price action.

Conclusion

Lastly, if it's about concluding one of the most anticipated topics, "Forex trend trading strategies," it won't sound complete since many prospects need actual uncovering because it's connected to the world's financial markets.

Point to be noted; there are countless fantasies about trend trading strategies that You'll be better off knowing.
 

It usually goes like this:

- Trend trading strategy ensure a 1000% success rate.

- Trend trading strategies don't require any hard work while fabricating.

- Trend trading strategies are only consistent with the RSI indicator.
 

Trust me, all the facts stated above are delusions created to press down the significance of day trading and its glory. Therefore, keep them in check, will you?

And it's also true that the learning process will most likely take some nerve-wracking time, but it's worth the effort in the end.

Therefore, ready to challenge the odds of the financial industry while achieving mastery over Forex trend trading strategies? Well, you better be!

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