Following The Trend: Such A Deceptive Ease

Introduction to trading in a trend

Among an ocean of strategies used in trading in financial markets (raw materials, stocks, bonds, futures, options, currencies, etc.), the most popular one is the trend following. Literally in any book having to do with Forex trading you will undoubtedly come across this classic saying: «Trend is your friend!».

However, every reader who at least tried to trade on his own (we guess most folks reading this article had this experience) knows that this friend is very … strange. It would seem that it’s so easy to open a trading terminal, spot a trend (for example, an uptrend) and start trading in this trend, making a profit. However, the reality will bitterly disappoint us – it turns out, it’s not so simple.

 

What is a trend?

First, there are dozens of definitions of the very term «trend», and they greatly differ. Let’s take the standard one: «Trend is a directed price movement». Where does the trend begin? Where does it end? When will it reverse? There aren’t definite answers to these questions. We often think that we have found these answers, but the market can quickly and rigidly, without warning, convince us that it’s not true. The obvious bullish trend suddenly turns into no less evident bearish, and then back. Have you encountered it? We are assured you’ve seen it thousands of times.

Secondly, we should choose a timeframe, where we want to make the most of the trend. Well, we open a trading terminal and shift to the currency pair EUR/USD, for example:

M5 – a bullish trend:

Following the trend: such a deceptive ease: a bullish trend

M15 – a bearish trend:

Following the trend: such a deceptive ease: bearish trend

H1 – a bearish trend:

Following the trend: such a deceptive ease: bearish trend

Sure, you’d like to know which of them is true bullish or bearish, you need one trend instead of several ones. You wonder whether you need to open a long position or a short one would suffice. In this particular case, considering other conditions (movement of other currency pairs, etc.), it is advisable to trade on a long-term trend, so you need to be a bear here.

For clarity, we have opened the FinMax broker terminal. You can also open a demo account there for testing your tactics.

 

Components of successful trading

Before finding the answer to these questions, it’s important to realize the following:

These (following in order, strictly one after another), three components of successful trading don’t work without each other. A greedy or impatient trader won’t benefit from any trading system, including following the trend. A trader who violated risk management and opened an excessively large position will also inevitably lose in the long term. Having opened a too small position, one will receive an insignificant profit (for example, a couple of dollars with one thousand dollars on the account). The market is a forest, profit is a game bird, a trader is a hunter, and his the trading system is his weapon. Of course, giving a gun to a person who’s not capable of shooting, can hardly be a smart move.

 

Components of a successful deal

Every successful transaction suggests:

  • Opening of the transaction
  • Monitoring of the transaction
  • Closing of the transaction

Only if you manage to follow each of the three specified actions, you will steadily earn in the Forex market. If you enter the market at the wrong time, then at least you will spend extra time and lose nerves. You’ve just opened a position, and the price suddenly (always suddenly) strongly goes against you, and you don’t know what to do – there’s nothing more to talk about. If the price goes in the right direction and we do not extend the deal to earn more, it’s too bad, as we do not use the entire potential given to us, we awfully miss profits. You should learn what you do not know.

 

Follow the trend

Let’s get back to the trend, which is either a friend or an enemy. From our personal experience we can say that it’s a friend. That’s a friend who needs to be faithful, and then everything will turn out. Following the trend starts with its recognition. There is nothing extraordinary here. We are able to recognize the weather outside, looking at the calendar and out of the window. Sure, with a cold spring we’d better stay away from walking in a T-shirt – we’ll do it when it gets warmer.  The same can be applied to Forex trading. You need to enter the market at the right time, act properly while being in it and exit on time.

If you don’t get along with the trend, the strategy doesn’t work. A trader closing positions (manually or by stop-loss) with insignificant market fluctuations, won’t be able to make the most of the trend. As Al Capone told: “The world belongs to the patient”…

How to trade with the strategy of following the trend

If you want your trading using this particular trading system to be effective, follow the signals indicated in our article:

Purchase of the Call option

In order to buy the Call option within the strategy of following the trend, you need:

1.From the list of currency pairs offered by the broker, select a pair with a long-term bullish trend.

2.Choose the moment when the short-term trend will coincide with the long-term one (bullish + bullish).

3.Follow the trend, buy the Call option:

How to trade with the strategy of following the trend. Purchase of the Call option

Purchase of the Put option

In order to buy the Put option within the strategy of following the trend, you need:

1.From the list of currency pairs provided by the broker, select a pair with a long-term bearish trend.

2.Choose the moment when the short-term trend will coincide with the long-term one (bearish + bearish).

3.Follow the trend, buy the Put option:

How to trade with the strategy of following the trend. Purchase of the Put option

 

Tips for trading in the trend:

  • To avoid being deceived, do not use timeframes until H1. Most often on M1, M15, etc. we see just a market noise, which emulates a stormy market activity, and changes many times a day.
  • The trend recognized by you needs to be checked on the highest timeframe (for example, you spotted a bullish trend on H1 – switch to D1 and check your conclusions). If the trends coincide, it’s good – that’s one of the long-awaited signals for the entry. If they differ, you’d better stay away from entering the market.
  • Professionals use trends that are obvious at least on a semi-annual chart, even better – on an annual (it is clearly visible on W1). The rule here is simple: a true, time-tested trend doesn’t change quickly, so it’s counterproductive and unprofitable to be distracted by false trends and breakthroughs.
  • Having chosen a trend – stick with it, to a reasonable limit, of course. Do not react to the usual market volatility, constantly provoking you to wrong actions. Let your profits grow. For example, the whole of 2017 for the currency pair EUR/USD demonstrated a bullish trend, and traders who managed to use this (simple, in general) thing derived a good profit.
  • If you’ve dared to go against the trend, you should be able to “roll over” (we will certainly review this technique in a separate article). If the price has gone more than 200 points against your open positions, there’s nothing to do about it, as one can’t argue with the market. In this case you should open a position in the right direction, take losses (close the losing position) and earn more than you’ve lost.

 

The strategy of following the trend at the broker Finmax

In order to buy the Call option in the Finmax trading terminal, follow these steps. Going to finmaxbo.com, prepare the option, specifying:

  • Type of asset: EUR/USD
  • Expiration: 60 seconds
  • Rate: $25
  • Quotation forecast: UP
  • Click the “buy” button and watch the result.

The strategy of following the trend at the broker Finmax. Purchase of the Call option

In order to buy the Put option in the Finmax trading terminal, follow these steps. Go to finmaxbo.com, prepare the option, specifying:

  • Asset Type: USD/JPY
  • Expiration: 60 seconds
  • Rate: $25
  • Quotation forecast: DOWN
  • Click the “buy” button and watch the result.

The strategy of following the trend at the broker Finmax. Purchase of the Put option


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