Please read carefully, because we will be discussing the basics of trend trading, a trading strategy that provides greater profit potential for your trading and investment portfolios. I’m sure you already know this old saying: Trend is Your Friend. Yes, in the business world, many people believe that following current market trends is a smart thing to do. Following a trend means that we follow the underlying currents, flowing with the crowd. Going against the grain may work, but it will consume a lot of time, energy and funds.
OK, now what is a trend trade? Trend trading is a trading strategy where a trader identifies the market trend and then sticks with it, takes a trading position based on it, and in the future the trader will close the trading position when the trend starts to change. of direction. The advantage of trend trading is very clear, our trading position would be in the same direction of the market. This is obviously very safe for your money, especially if you trade on margin in both the stock market and the forex market.
Besides safety, another advantage of trend trading is the huge profit power. For example, the average movement of the intraday trend in the GBP/USD currency pair, when the trend moves at least 100 pips. This is a lot of money, especially if you can get a consistent foundation. Although trending market is less frequent than non-trending market, you can sum up profit when you can catch such market movement, say within a month, obviously you will make a lot of profit.
To take full advantage of trend trading opportunities, you must surely have good trend analysis skills. Your accuracy in determining a trend in the market is very important. One tool you can use is the moving average (MA) because it is a good trend following indicator. For intraday trading, you should use an MA with a shorter period, for example, a 12-period MA. My favorite is the 12 period EMA. You can also use multiple time frame charts such as 4hr, 1hr, 15min and 5min with the same MA on all charts.
For example, when the price of GBP/USD moves above the 12 period MA on all 4 hour, 1 hour and 15 minute charts, this is an indication that the trend is emerging. You can then enter the market with a 5 minute chart for more accurate timing. As long as the price sustains above the 12-period MA on the 1-hour chart, you can hold your buy position. The early reversal signal can be found on the 15-minute chart, when the price starts to drop below the 12-period MA on the chart, then you should prepare to close your position and then pocket the profit. Be creative, you can modify this simple technique according to your trading style. Keep studying and practicing until you find a trend trading strategy that works best for you.
