Trade with the trend on Forex
The preferred direction of the price movement on the diagram which is characterized by the minimum progressive updating at the descending and the maximums with the upward trend is called trend.
Types and features of trends
Technical analysis adepts distinguish several types of trend on Forex:
- ascendant – a growing market, indicating the prevalence in the market of buyers supporting growth, through the opening of market orders;
- descending – prevalence of “bearish” morale, expressed in price’s falling;
- sideward consolidations – market is in this state 70% of time. Flat occurs when the position is formed by major participants.
There are 3 features of Forex trend:
- primary – lasts for 3 years,
- medium term – lasts at least 21 days,
- short-term – lasts 1-3 weeks.
Methodology and trading algorithm
The trading strategy and the algorithm based on it implies drawing a trend line on the chart, which allows you to visually identify the direction of the movement and determine the entry point, having correctly installed the protective order (stop-loss).
Figure 1 shows the descending direction of the trend Forex on the EUR/USD instrument.
The outline of the trend line is carried out by 2 wave peaks and the entry into the transaction is made at the third touch. The security order is set for #2 peak and take-profit at the border of the nearest sideward consolidation on the diagram where the position of the major participant is supposedly placed and from where the correction is possible.
How to determine the trend strength
It is possible to determine the strength of the trend by the slope of the line, the larger it is, the stronger the trend and the higher the chances of making a profit when opening a position. There is a technique that involves trading without setting a take-profit. The trader uses only the stop-loss moving it up or down as the price moves and setting the last minimum or maximum on the chart. Price changes the movement of the movement of the protective order, as shown in Figure 2. The purpose of the technique is to use the full potential of the movement.
Having correctly determined the direction of the trend on Forex, you can steadily profit in 40 – 60% of transactions. The stop-loss order is mandatory and is designed to limit possible losses and correctly adjust the management, which allows you to earn a stable long-term.