For a new trader or an amateur, a way of managing risk and not incurring colossal losses is to play safe and sure. This means basing your positions in the market on slow, but sure elements. This is precisely the reason, that trends are expressed in the markets, as “The trend is your friend.” Even experienced traders seek trends on which they can base their positions.
Why Use Trends
So what makes even experienced traders seek a strong trend, and why should the inexperienced ones also find one? The answer lies in the ease in trading it offers to the traders. The strategy is simple, find a strong trend and then trade in the trend’s direction. It becomes less important to time your trade entries. This is because, if the market shows a declining trend, all you need to do is go short. However, you should always watch out for reversals in trends. This, therefore, means that you have to be careful in timing your exits.
Here’s another reason why you should trade in the trend’s direction. A small research will show you that there are more pips available to profit on when you move in a trend’s direction, than against it. This is simple, a trend shows where the price graph is inclining over a given period, up or down. So if price has moved in a given direction in more days than less, there are more pips to bank on in the same direction.
Identifying Trends
Identifying trends is not too hard, if you have a good broker at your service who allows you many charting tools to play with. But you don’t need a hefty tool for this, just extract a chart with 100 to 200 candle bars on it. Now you can see a trend going in one direction or the other. If you see higher highs and higher lows, that’s a rising trend. On the other hand, if you see lower highs and lower lows, well that’s a declining trend. The trend changes, when you notice highs and lows contrary to the existing or previous trend.
So is there a special way to pick trends? No, the basic idea is to pick those pairs to trade that have the most obvious trends forming up. There are at least 30 most popular pairs available which you can trade. You can further improve your trade by following only those signals that follow your pair’s trend, this way you will improve your probabilities.
James Fanklen
