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How to Identify the trend and flat at Forex. Instruction.
Reasons why it is important to know conditions of the market
It is often said that a flat is a “killer” of deposits of the traders who trade on trend. This is indeed the case. If your trading system demonstrates good results in case of strong trend in the market, it will not work well in case of flat market.
Experienced traders know that after sideways movement the price often moves in trend. Long-term flat can be used as a signal of the following up long-term trend, although this is not always true.
A period of the flat – is a period of uncertainty, when it is difficult to make any forecasts. When the price moves in a narrow range with no directional movement, it is almost impossible to determine future movement direction.
Trend and flat
Trend is a directional movement of the price. There is a bullish trend – in the financial markets it is the rise in the asset price. This trend is associated with a bull that tosses up a prey on the horns. There is also a bearish trend when the price of the asset goes down. This trend is associated with a bear that paws its prey from top down to the bottom. A trader shall always consider current trend and trade in accordance with it. In case of the uptrend a trader shall buy, in case of the downward a trader shall sell.
Trend is a trader’s friend.
Sideways movement is also called a flat. I determine flat as a sideways trend. It helps to understand reversal patterns at Forex. Price movement can not only change from uptrend to downtrend, it can also go sideways as well! This is the fact, which is often overlooked by many traders, who lose money. Flat at Forex is a time period when the strength of the bulls and the bears are equal, which makes the formation of a certain trend difficult; therefore the price has no definite trend, moving in a certain price range.
Flat is a trap for inexperienced traders.
Methods of determining market conditions
I use three methods of determining conditions of the market: indicator, graphic and session. Let’s take a closer look at them:
Indicator method of determining market conditions
A trader can use various volume indicators, such as: ADX, Pulse flat, Parabolic SAR, Bollinger Bands, Trend Filter, Xaser FV and others.
Volume indicators can be used to confirm a flat. Usually, during the period of flat they show lower values than at other times. However, if the trading channel has a wide range, a trader shall use some other tools to determine market conditions.
The figure above shows daily chart of the currency pair EUR/USD with the indicator iVAR or “the Index of variations”, which looks like a zigzag in below the chart. This line is around the levelof 0.5, which is has been set in the default.
The indicator is based on the theory of financial time series, which represent fractal time functions.
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The use of the indicator in trade:
- If an indicator is less than 0.5, it shows a trend. Low value shows that a trend is getting weak or that a correction can begin;
- If an indicator is more than 0.5, it shows a flat. Very high value shows the development of the trend;
- If an indicator is around 0.5, it shows uncertainty and it is better not to trade in this case.
Indicator iVAR can be used as an additional signal confirming signals of the other indicators. It shows the formation of a trend, but it does not show movement direction.
While using indicators to determine market conditions a trader shall always remember the following rules:
- Different tools have different advantages and disadvantages depending on market conditions and volatility. Therefore, a trader shall learn all the information about the indicators and test them many times.
- Consider your indicators only as an additional tool of the market analysis.
- Pay close attention to the original indicators. Especially to those, principle of work of which is not clear.
Graphic method of determining a flat or a trend
One of the effective method of determining a flat is to find their upper and lower lines then allocate there the support and resistance levels. Support and resistance levels is the most important factor of prices. If disbalance between sales and buys is appear on this levels, the price movement will be stopped or reversed. After the price breaks any of the flat borders, just start to search for trading opportunities.
The alternative possibility is the trading inside the channel, but you need to consider that the distance from the upper to the lower lines should be sufficiently large.
The figure above shows a five- minute chart of the currency pair EUR/USD.
- In the area 1 the price is moving sideways
- Upper limit of the flat
- Lower limit of the flat
- The price breaks the flat upward
- The price is in trend
A lot depends on the timeframe selected by a trader.
The range of the price channel can be either of 10 points or 100 points, depending on the timeframe. A trader should clearly understand that the flat on a daily or hourly timeframe does not exclude ascending or descending trend on say, five-minute chart.
Sometimes, a shape of a candlestick helps to determine market conditions. If the body of a candlestick is unusually short, while the shade is very long, it tells that neither buyers nor sellers have an advantage in the market.
Session method of determining a flat
This method is especially useful for intraday trading. Forex trading is available 24 hours a day, but in reality, trading day consists of several trading sessions.
This method is based on consideration of each trading session separately; as a rule, after a period of price consolidation, the price starts to move strongly to either direction.
If during one trading session the price was in flat, during the next session the price may move in trend, and Vice versa.
The figure above shows the main trading sessions and the five-minute chart of the currency pair EUR/USD.
Meaning of the symbols on the chart:
Ao – opening of the Asian session;
Lo – opening of the London session;
Ny – opening of New York and American sessions;
Lc – closure of the London and European sessions.
In the area 1, which is the Asian trading session, the price moves in a narrow channel (about 30 points); with the opening of London session (area 2) the price moves in a strong trend.
- A trader shall always take into account important economic news, as the news often is the main driver of strong trend movement.
- Activity of different trading instruments varies during trading sessions. For example, volatility of the major currency pairs increases significantly after the opening of the London and American markets.
A trader shall learn well all information about the indicators he/she is going to use for determining market conditions; indicators are used only as additional tools of market analysis.
If you use a graphical method of determining a flat, do not forget to look higher timeframes. Different time intervals may show different market conditions.
Take into account important macro-economic statistics and economic news, as they affect movement direction.
Try not to trade in flat, as it can be very risky.
I am really excited about 2 articles on the same theme from my forex blog colleges and i wish to recommend it for reading for everyone:
1. “Trend is your friend. but for how long?” – read here (recommended for the beginners)
2. “Where will the trend end? TD Trend Factor and TD Propulsion” – read here (recommended for the professionals)
P.S. Did you like my article? Share it in social networks: it will be the best “thank you”
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Combining trend and flat strategies
There are numerous trading strategies out there. Some of them look for a trend, while others define ranges of price fluctuations to trade within them. The market is volatile. Trends are always followed by flats. This provides profit opportunities both for trend followers and those who trade within ranges. When one of these two groups makes profit, another either loses or waits for the right moment.
Is it possible to combine these two approaches to increase profitability? Can two strategies complement each other? Let’s try to combine seemingly different trading models and see the result of such a combination.
1. Strategies combining principles
Price charts witness constant change of trends. Strong movements are followed by flat ones when the price starts moving within a narrow range. Traders choose their strategies based on the current market conditions. But how can we determine, which strategy to choose at the moment? A trend or a flat one?
The articles  and  consider various trend and flat trading strategies. It is easy to notice that applying a certain strategy begins with assessing the market situation. Both strategy types use different trend indicators to determine the market state. However, while trend strategies enter the market in the presence of a trend, the flat ones expect it to quiet down to open a position. Thus, our first approach when combining two types of strategy into a single Expert Advisor is the following: if there is a trend, use the trend-following algorithm, if there is no trend, use the flat one.
After more detailed examination of price charts, we can see that neither trend, nor flat movements occur unidirectionally. All movements are accompanied by price fluctuations. In case of flat movements, they have a close range, while during a trend, some prevail over others. This feature can be used when combining trend and flat strategies. The idea is to follow a trend, although the entry point should be confirmed by the oscillators used in flat trading. This approach helps in catching an end of a correction reducing drawdowns and increasing the potential of the price movement in a favorable direction.
2. Developing the Expert Advisor
To demonstrate the principles of combining strategies, I have selected strategy 1 from the article  and strategy 6 from the article . Both selected strategies use ADX indicator to determine a trend. EAs optimization was preliminarily performed on the period from 01.01.2020 to 8.01.2020. The following parameters were selected based on these strategies’ optimization results.
Trend strategy 1.
Flat strategy 6.
Trading results of single EAs with optimized parameters are provided in the screenshots.
Trend strategy 1.
Flat strategy 6.
Both applied EAs are based on opening orders according to the indicator signals in the absence of open positions at the moment the signal appears. A position is closed according to the pre-defined take profit and stop loss values.
This approach allows excluding the position tracking module from a position greatly simplifying the EA logic. When combining the EAs, I will deliberately leave the EAs’ operation logic intact to demonstrate how combining methods (rather than changing the EAs’ logic) affect the result.
2.1. Method 1
The first method is sequentially checking the signals of both strategies and opening a position when any of them appears. Each strategy features its own indicator parameters, as well as stop loss and take profit levels. With this approach, the presence of an open position according to one strategy excludes opening a position according to another. Thus, there will always be no more than one position in the market, which limits the risks.
The disadvantages of this approach include possible loss of profitable trades on one of the strategies when a position opened according to another one is present in the market. However, according to this approach, the applied strategies should trade in different markets, which means that the effect of this drawback should be minimal.
To implement the method, copy the codes of both EAs into one file combining them into a single code by identical functions. To avoid name duplication, add ‘Trend’ to variables and functions of a trend-following strategy and ‘Flat’ to variables and functions of a flat-following strategy.
At the beginning of the OnTick function, check the presence of an open position. If there is no open position, update the indicator data and check entry signals for trend and flat strategies sequentially. In case any of the signals appears, open a position according to a corresponding strategy.
The full EA code can be found in the attachment (Combination1 project).
2.2. Method 2
The second method slightly complicates the process of combining, and in addition to the first method, a certain conglomeration of signals of the two strategies is created.
In the provided trend strategy example, ADX cloud indicator is used to define a trend. The indicator shows the provided difference between the DI+ and DI- lines, while the strength of the trend is not checked. At the same time, the flat strategy checks the strength of a trend using ADX threshold value before opening a position. Therefore, we can introduce an additional filter to perform a deal following the trend strategy taking the strength of a trend into account.
In the trend strategy, deals are sorted by RSI indicator, therefore we can reduce the number of loss-making deals following the flat strategy by excluding opening positions against RSI signals.
The full EA code can be found in the attachment (Combination2 project).
2.3. Method 3
The third method is applicable for hedging accounts and consists of using two strategies in a single EA independently. A certain magic number is assigned to orders of each of the strategies. Positions are opened upon incoming signals regardless of whether there is an open position following another strategy.
This approach accurately simulates the use of two EAs on the same account while preserving all the pros and cons of such approaches. In particular, risks are increased as a result of the possible opening of two positions following different strategies simultaneously.
In the OnTick function, check open positions having a trend magic number and the ones having a flat magic number separately.
The full EA code can be found in the attachment (Combination3 project).
3. Testing Expert Advisors
After preparing three EAs following different strategy combining methods, it is time to test the EAs and compare the results. For comparability of the results, the tests are to be conducted without changing the EAs’ parameters.
3.1. Testing method 1
The first test shows profit. The total profit and recovery factor turn out to be higher than in any of the original EAs. In comparison with the flat strategy, the balance line looks more even, the number of deals increases, while the maximum drawdown in terms of balance and funds is reduced. At the same time, the profit factor slightly decreases and the total profit is still less than the total profit of the initial strategies.
3.2. Testing method 2
The use of the second method allows increasing the total profit in comparison with method 1, while the number of trades remains the same, although the total profit is still lower than the total profit of the initial EAs. In turn, the growth of profit allows increasing the recovery and profit factors (the latter becomes equal to the flat strategy), as well as the share of profitable deals. At the same time, the maximum balance drawdown is decreased.
3.3. Testing method 3
Applying the third method allows increasing the total profit up to the level of the total profit of the initial EAs. The increase in profits is made possible by the increase in the number of deals. At the same time, the deposit load and the maximum balance drawdown are increased.
4. Optimizing strategies
The EA tests performed in the previous section demonstrate the advantages of combining strategies within EAs. All three methods show an increase in profit as compared to any of the original strategies. But we should not forget that the original strategies were optimized for the tested time interval, while the same initial parameters were used for testing the complex EAs.
However, we all realize that any interference in EA’s logic requires additional adjustment of its parameters. Let’s try to optimize the EAs assembled using the first two methods of combining strategies and see the results.
Keep in mind that the very idea of developing EAs lies in earning money on the market, rather than in demonstrating their capabilities on historical data. Therefore, I suggest dividing the test period into two sections. Previously, we conducted tests for the period from 1.01.2020 to 8.01.2020. Now, I propose conducting optimization on the time interval from 1.01.2020 to 6.01.2020 and performing a forward test on the remaining interval.
4.1. Optimizing method 1
While choosing optimization parameters, keep in mind that each of our EAs includes blocks of two strategies. In this case, each strategy uses two indicators for an entry. But let’s not forget that both strategies use ADX to determine the strength of a trend and its direction. Thus, the EAs’ logic applies three indicators for defining entry points. I suggest optimizing the periods of these three indicators.
ADX indicator period optimization shows the maximum profit and robustness against changes of other parameters with the indicator period ranging from 12 to 14. The graph below shows the correlation of the EA profit with changes of ADX and RSI periods on the optimized time interval.
The conducted forward test confirms the possibility of making profit within the indicated range of the indicator values. The maximum stability is observed with the ADX period equal to 13. In its turn, the similarity of the optimization and forward test results prove the EA’s robustness on a non-optimized time interval.
WPR period optimization shows similar results. The maximum EA robustness on the optimized interval is achieved with the indicator period equal to 7. At the same time, with the growth of the ADX indicator period, it is also possible to make profit in the range of 3 to 5. The graph below shows the correlation of the EA profit with changes of WPR and ARX periods on the optimized time interval.
The forward test confirms the specified zones. At the same time, the profit grows in the range 3-4 of the WPR indicator period. In case WPR is equal to 7, the EA profitability decreases, while ADX indicator values increase. This may be due to the shorter test time interval and its specificity.
Optimization of RSI indicator period confirms all of the above. On the optimized time interval, the range from 27 to 32 is most notable for its profitability and robustness against changes. The graph below shows the correlation of the EA profit with changes of RSI and ADX periods on the optimized time interval.
During the forward test, the profitability range of RSI periods was narrowed down to 30-32.
Attempts to optimize take profit and stop loss values did not allow increasing the EA profitability and confirmed the previously selected parameters.
According to the optimization results, the most optimal parameters are ADX period equal to 13, RSI period equal to 30 and WPR period equal to 7. With these parameters, the EA received 202.33 USD of profit on the optimized period and 46.10 USD on the forward one, while other parameters remained equal. This profitability exceeds the one obtained when combining the EAs according to the method 3 on the period tested above. The use of similar parameters in the EA combined according to the method 3 also yields worse results: 166.29 USD and 60.27 USD, respectively.
Confirmation of the forward test optimization results proves the EA robustness on a non-optimized time interval.
4.2. Optimizing method 2
It is interesting that the optimization of the EA combined according to the method 2, yielded results that are similar to the previous optimization. This may indicate the trading system robustness. The indicator periods similar to the ones in the previous section were selected as a result of the optimization. With other things being equal, the method 2 EA showed a lower profitability due to the reduction in the number of deals. Optimization graphs are provided below.
At the same time, improving the quality of trend strategy signals allows optimizing stop loss and take profit levels. As a result of the optimization, stop loss for a trend strategy is reduced from 25 to 20 points, while take profit is increased from 90 to 110 points. This allows increasing the profitability of the EA’s work. Graphs of stop loss and take profit levels optimization are provided below.
Based on the optimization results, the profitability of the EA combined according to the method 2 is the highest out of the three considered options. Applying the parameters obtained during this optimization yielded worse results on other EAs. Screenshots of testing the optimized EA are provided below.
In this article, I suggested three methods of combining two strategies into a single EA, showed how to arrange this in the EA and tested the EAs without changing the parameters after their optimization.
The table below summarizes the results of testing all the strategies. Optimization of combined EAs showed a higher profitability compared to the use of two separate EAs.
In your EAs, you are free to combine more than two strategies using a different combination of the proposed methods or by adding your own ones. It is impossible to say unequivocally which of the methods is the best. In each case, traders should be creative when choosing a method for combining strategies and consider the strategies themselves and their operation logic.
Tips Every Forex Trend Trader Should Know
They say the trend is your friend. Or, ride the trend until its end. But, what should a trend trader do to ride a Forex trend?
Everyone wants to trade trending markets. The problem is that trends do not form that often. However, there’s a catch!
Even if a currency pair ranges on the bigger time frames, on the lower ones small trends appear. As such, a Forex trend strategy gives results on lower time frames while the market consolidates on the bigger ones.
The biggest enemy to a Forex trend is the trader himself/herself. Do you know the reason why most traders fail? They can’t handle the market heat. Fear and greed take control over their decisions.
Therefore, instead of letting the profits run, retail traders settle for small wins. However, when it comes to cutting the losses quick, the reaction differs.
As a rule, traders find it extremely difficult to cut losses. But, equally difficult is to let the profits run.
A trend trading strategy must let the profits run. Moreover, Forex trends reversals must be part of such a strategy.
In Forex trading, any strategy without money management rules won’t survive the test of time. If traders start with the intention of buying the absolute low or selling the absolute high,
Forex trend signals do not differ than reversal signals. From a money management point of view, they’re the same. Furthermore, combining a Forex trend approach with reversal strategies will make the trend trader a complete trader.
The aim of this article is to show a few tips and tricks when trading a trend. The examples used here will help you understand how to ride a trend. And, how to trade its end.
What is a Trend in Forex Trading?
When the market, or the price, moves, the market trends. The longer the move takes, the stronger the trend is.
The bigger the time frame is, the stronger the implications for that currency pair and for the entire Forex dashboard. Imagine, for example, the EURUSD drops two thousand pips in a strong trend.
Because this is the most important currency pair, the implications go beyond it. Other U.S. Dollar and Euro pairs will adjust their rates.
Forex trend trading as a strategy considers the way the market moves. A trend trader will look at clues the market makes. These clues help to define the overall Forex trend.
Lower Highs and Higher Lows – A Forex Trend’s Definition
The first clue that a market forms a trend comes from a very simple sequence: lower highs or higher lows. Any Forex trend trading strategy should start from this point.
A Forex trend continues with the market moving relentlessly in the same direction. Trends may look aggressive on the hourly chart. But, on the daily, or higher, the market may simply correct.
Traders that have a trend trading system always pay attention to this higher lows/lower highs series. As long as the series holds, the trend goes.
Earlier in the article, I explained why retail traders fail to be trend followers. Many think they ride the trend. But, they’re not!
The problem comes from the time frame. People don’t have patience. Forex traders don’t have patience at all. This is normal because they deal with money.
Whenever money or a possible profit gets involved, things get messy. A trend trader’s first task is to have a different Forex trend approach to different time frames.
To this, I would add that a proper Forex trend analysis involves both patience and discipline. Regardless the time frame.
Such a simple thing like the break of a lower highs series in a bearish trend makes a difference. Until it happens, you simply ride the trend. No matter what!
Above is the EURUSD daily chart that shows the drop from 1.40 all the way to almost parity. What a trip it was!
The funny thing is that it happened in less than a year. All this time, Forex trend followers should’ve done nothing. Or, nothing but let the profits run and enjoy the run.
No spike higher took the previous swing’s highs. Hence, the trend was still alive and kicking.
If you consider the time frame (daily!), there’s a scope for tremendous profits. And the pair didn’t disappoint.
Trend Trader – The Two Points Strategy
Any trend trader must follow this rule: A Forex trendline gives the trend. In plain English, the trend line represents the line of the trend. Hence, you mustn’t ignore it.
Consider the earlier chart for a second. It shows three Forex trend lines in three different colors.
The black one is the main one. As long as the price stays below, bears should not worry.
Moreover, a trend trader knows a trend will, eventually, the end. As such, he/she will look for clues to spot the trend reversal.
The two points strategy consists of…you guessed it, two points! A trend line needs only two points.
The thing to do is to connect the two points (in this case, the two lower highs) and drag the trend line further on the right side of the chart. Trading is easy until a Forex Breakout in the main trend occurs.
Aggressive traders always look to buy the dip or sell the top. But, without a money management system, such an approach will end up failing.
The blue line in the previous EURUSD chart shows an even stronger/sharper trend. Keep in mind that we talk about the daily time frame.
The red one shows even a sharper one! Now, step back a bit from this chart and imagine you sold from 1.40.
Or, to keep it realistic, imagine you sold from the moment you saw the two points (the two lower highs) and the previous swing’s lows were broken. And you kept the position all the way until the red trend line gets pierced!
How about that for a trade! Nevertheless, if you’re honest with yourself, as a retail trader, you won’t normally trade like this.
Why not? Isn’t this a nice Forex trend system? Of course, it is. But, again, the problem comes from the execution part.
Riding a Forex Trend
One of the biggest problems a trend trader faces is related to timing. When is the best time/place to enter a trade?
The classical Forex trend following strategy says that you should buy the dip in a bullish trend. Or, sell the spike in a bearish one.
This sounds like a cool advice. But, can we have some rules? Can we, as traders, put this in some sort of trading plan? Can we have a clear entry, stop loss and take profit level, while still riding the trend?
The answer is yes. Forex trend trading strategies must follow a money management system. Without it, trading is useless.
Look for a New High/Low
A trend trader has more patience than the regular retail trader. Scalping is not his/her thing.
When riding a Forex trend, every step is a planned one. When to buy or sell? A trend trader knows in advance the answer to these questions.
Let’s go back to the two-point strategy mentioned earlier. A Forex trend line strategy starts with these two points.
After drawing a trend line, all eyes should be on the moment the price pierces it. When this happens, traders face two outcomes:
– the trend line’s break could be fake.
– the trend may reverse.
How to distinguish between the two? Moreover, how to make sure the trend still runs?
Simply look for a new high in a bullish trend. Or, a new low in a bearish one.
The USDJPY weekly chart above shows how to do that. The steeper trend line (the first red line) shows the original trend trading strategy. In a bullish Forex trend like this one, a trend trader wants to buy.
Buying takes place either from lower or higher levels. Never be afraid to buy new highs!
Buying a new high means buying strength. Traders go long when new opportunities arise.
In the case above, after the two Forex trendlines show how to do it. Wait for the price to break the first one, then look for a new high.
Buy that high, place a stop loss at the previous swing’s lows and use an appropriate risk-reward ration. For the Forex market, anything between 1:2 and 1:3 works.
However, you want to make sure you stay in the trend. Hence, book half profits at the risk-reward ratio level, and trail the rest. This way, you’ll end up riding the trend until its end.
Where to Add to a Position – A Trend Trader’s Dilemma
Every trader faces this problem. What is the best place to add to a position?
If the trend is strong enough when to buy/sell without meaningful drawdowns? One Forex trend following strategy helps.
The way to deal with this is to use an oscillator. Any oscillator will do. However, the RSI Technical Indicator works amazing!
To make sure the Forex trend following works, simply use the overbought or oversold levels to add to a position. The Forex trend in the chart below starts with the first two points that give the Forex trend line trading strategy.
The EURJPY above illustrates the strength of this strategy. By connecting the two points, you’ll have the trend line. If you project it forward on the right side of the chart, it gives the overall trend.
The RSI, in this case, acts as the best Forex trend indicator. A trend trader first looks at the trend’s direction: bullish or bearish. In this case, a bearish trend.
As such, the aim is to sell overbought levels with the oscillator, while the trend lines still hold. Oscillators represent the best Forex trend indicators in this case.
Traders will either sell when the price comes to the trend lines (in this case, three opportunities) or, even better, will wait for the RSI or the oscillator to give a sell signal too.
This is how a Forex trend scanner system works. Waiting for confirmation will always pay, in the sense that there is little or no drawdown after such a trade.
This Forex trendline strategy gives five trades to enter the trade. These five new trades have little or no drawdown.
However, the money management strategy will keep things nice and simple: place a stop loss at the previous swing’s high and go for 1:2 or 1:3.
Live Trading Example Showing How to Trade Forex Trend
Below you will find a FREE video example that shows a short trade taken as a result of a bearish trend bounce. Although the price implied a tricky breakout first, I identified the break as a fake and I held the trade for the upcoming bearish impulse.
Simply enter your details and see the Forex trend trade for free:
Different Forex Trend Trading Strategies
The biggest advantage of a trend is that you cannot miss it. That is, if you pay attention to details.
As mentioned earlier, look for a series of lower highs in a bearish trend. Or, higher lows in a bullish one.
Then simply draw a trend line connecting the lowest points (in a bullish trend) or the highest ones (in a bearish trend). The resulting line is the best Forex trend line indicator.
A trend trader doesn’t need a trend indicator “per se”. A trend trader needs clues that give him/her a competitive advantage in front of other market participants. The higher lows/lower highs series represent such clues.
Support and Resistance with a Forex Trendline Strategy
Everyone knows about support and resistance. But, few traders know that the most powerful support and resistance levels do not form horizontally.
They’re called dynamic support and resistance levels. When riding a Forex trend, they work like magic.
Riding a Forex trend is one thing. But picking up a top or a bottom after a Forex trend is another!
Yet, this is a risky approach and doesn’t represent a sound Forex trend trading system. The EURJPY chart above illustrates that.
The bearish trend worked for quite some time. After the two points gave the Forex trendline strategy, a trend trader had great opportunities to ride the trend.
However, with a proper strategy, one can pick a top or a bottom. Again, patience is key!
AFTER the price breaks the trend line, a trend trader looks at resistance turning in support. In other words, buying starts.
The RSI acts as a bellwether here. Again, the strongest signal is the one that has both the RSI and the trend line acting together like a Forex trend strength indicator.
In this case, a Forex trend trader may buy the first RSI signal after the price broke higher. If that’s the case, the stop loss should be at the previous swing’s lows.
While that trade didn’t work in a straight line, the second one did. When the RSI and the trend lines act together like a Forex trend line indicator, traders enjoy the ride.
Ichimoku as a Forex Trend Indicator
To illustrate the simplicity of a trend-following system, I’ll use the Ichimoku indicator. This one is famous for showing a balanced market: it forecasts future support and resistance levels while uses historical prices.
When riding a trend, Forex traders look at places to add to the original position. The Ichimoku helps in this regard.
Above there’s the USDCHF four-hour time frame. The Ichimoku cloud acts like the perfect Forex trend indicator.
When the cloud turns red, traders look to sell. When it turns green, it is time to buy. Isn’t trading easy?
The best trading indicator is the one that shows future price levels. Ideally, it will show both the future price and the time when the market will go there.
Using this simple Forex trend approach, simply sell when price meets the red cloud while not breaking the previous swing’s highs. Again, the money management system matters the most.
When/if the stop loss gets hit, the Forex trend reverses. But, if a trend trader uses a proper risk-reward ratio when the stop loss gets hit, the market opens a new opportunity. A new trend starts, and the same logical process begins.
There’s no best trend indicator nor a Forex trend detector system that works all the time. Because the Forex market spends most of the time in ranges, a trend trader sees many fake moves.
But discipline overcomes setups. There’s no setup that work’s all the time. However, a Forex trend strategy works all the time.
The important thing is to make sure your account survives the next day. And the next one. And so on.
Retail traders face many headwinds. Trading algorithms (robots) govern the markets today. Yet, profits can be made riding trends.
Because the Forex market ranges most of the times, a trend trader goes on the lower time frames to catch the intraday moves. But this is a risky, as the market will swing from lows/highs simply because the previous lows/highs were broken
To make sure they survive in the long run, Forex trend traders look at the bigger time frames. The bigger picture always tells the truth.
Monthly, weekly and daily charts matter the most. They filter the noise in any given trading day and keep traders on the right side of the market.
All in all, every retail trader wants to ride a trend. Few make it, though. This article explains why they fail and what to do to succeed.
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