Trend Follow Forex Markets and Make a Killing

Big money is made trend following in forex markets however most traders are reluctant to do it and instead try and trade for small profits – but it’s a fact the big profits are made following the longer term trends. So why don’t traders want to follow the big trends? There two main reasons…

They think they can make more money day trading and fall for the huge industry that has grown up selling short term day trading and scalping systems.

All these systems come with simulated track records and all will lose you money.

Why?

It’s obvious – you can’t predict what millions of forex traders are going to do in a few hours – all short term volatility is random and if you try and predict what will happen, you will lose.

The second reason is more complex.

It comes down to the fact that most traders can’t accept big gains!

This may sound a bit of a paradox, as all traders are in forex to make money – but they have problems accepting profits, here’s why:

Its obvious if you look at a chart that there are long term trends that last for months or even years. This is simply because they reflect the economic cycle of the country they represent and economic cycles last for these periods.

Now if you can lock into and hold these trends, you can make huge profits but most traders don’t have the discipline to do so.

Why?

Because markets are volatile and a typical scenario unfolds in the following way.

A forex trader enters a trade and is pleased to get a profit but the bigger the profit becomes, the more tempted he is to take it. Swings in equity start to eat into his open equity and eventually his nerves get the better of him and he snatches a marginal profit – even though he knows the trend will probably continue.

What happens next?

The trend carries on piling up $10, $20,000 or more and he’s not in but he knew the trend was going to continue! He just didn’t have the discipline, or the courage of his conviction.

There is no doubt that if you lock into the big trends you can make huge profits.

I know traders who trade less than once a month but make triple digit gains, holding positions for weeks or months.

They know that you have to sit through short term equity dips – but if you have the right forex trend following system that doesn’t matter – you have your eyes on the bigger prize of mega profits.

Big profits are made trend following the currencies but very few traders have the confidence and discipline to do it, although it’s the best way to trade and can make you huge profits longer term.

How To Spot a Real Forex Trend and Protect Your Investment Against Market Volatility

Market trend direction is easily misinterpreted. Quite often, traders misread explosive price fluctuation that results from a press release or news event. If charts shoot up, due to one of these events, brokers, platforms and many analysis tools indicate a strong uptrend that tempts traders to enter a trade. The difficulty is, the market often enters a choppy zone and experiences a hard fall and traders experience a loss.

To avoid falling into this trap, focus on longer trends. Instead of trading, based on a few consecutive green candlesticks, look at longer trends. A good rule of thumb is to analyze at least 200 candlesticks to determine the correct trend direction. Draw a line from one corner to the opposite diagonal corner. If the price bars touch the line multiple times, you’ve found a reliable trend. This simple method, using pure price action, seems to be the most reliable method for determining a reliable trend.

Using Trend Draw Downs To Make More Profitable Trades

A trend drawdown is calculated based on price action. It tells traders how far the price went against the current trend and gives them an indication of when to make the most profitable trades. For example, if the full chart movement is 882 pips and the biggest movement against the chart direction is 233 pips, the drawdown is 26%.

To calculate the drawdown, use the following equation:

233 / 882 = 26%

Conservative traders prefer the trend drawdown to be at or below 20%. Large investors like to see trend drawdowns of less than 15%. You’ll find trends that match your trend drawdown preferences almost every day on at least one forex chart. If you happen to find a trend drawdown of 10% or less, you’ve hit the jackpot. When a trend drawdown is that low, you’re almost guaranteed to engage in a successful trade.

In addition to using trend drawdowns to protect your trades, you also need to protect your investment against market volatility. Using properly placed stop losses, helps to increase your profits substantially.

If traders place a stop loss right after entering the market and too close to their entry point, they risk losing their trade. As a profitable trader, you need to give the market a bit of breathing space, so your stop loss isn’t triggered too quickly. Some traders use a set number of pips to set a stop loss, which is somewhat risky. Your stop loss should be set to reflect the volatility of the market.

Setting your stop loss at the same number of pips as your trend drawdown, gives the market enough room to move, but leaves you protected at the same time. If the number of pips is too great for your current level of investing, chose a smaller size lot.

If you trade a mini lot and $233 is more than your risk tolerance, consider trading a minilot or don’t take the trade. There’s no advantage to taking small pip values to reduce your risk, because you’re more likely to hit the stop loss and lose the trade anyway.

The ultimate solution is to discipline yourself and be patient. Instead of searching the market looking for trades, watch a few currency pairs on all time frames and prepare yourself for successful trades. It can take you about 15 minutes to scan the currency pairs, but it allows you to pick only the best trending pairs with the highest potential for making profitable trades.

Profitable Trend Forex System and How to Avoid False Signals

I am sure that we all can agree that a profitable forex system consist of certain rules and signals. In order, to be a profitable trader, you must understand that the forex trend is your friend. A profitable trend forex system gives you the signal to enter the trade when you see a break through of a resistance line (highs or lows). If you have trend heading up after breaking a resistance line of the highs, then you would go long. The opposite holds true, if you have trend heading down after break a low resistance line; then your would go short. A trend line alone is not profitable without understanding these two rules, the false trend breakout and forex consolidation.

1. The false trend breakout – As a trader, you must look at your forex trends and charts, as an analyzer. There are times when a profitable forex trend turns to a false forex trend due to two main reasons:

(a) Breaking economic news (b) Market just opened

There are couples of steps to help you avoid being a victim of a false trend. Always have your forex calendar open to seek if there is any major news occurring for the day and do not trade a signal when the market opens within the first couple of seconds or minutes. There are some other factors that may affect a profitable trend forex system that is out of your control for ex. political news and weather.

2. Forex consolidation – A forex consolidation occurs when the forex trend is moving in a straight line. The forex market does have it highs and lows, but it hasn’t budged for a considerable amount of time. If the forex trend is moving higher and higher, then all of a sudden it starts to consolidate. You must be patient and willing to wait to see if the trend is going to continue, by breaking the highs or lows. The opposite holds true, if the forex market trend is moving down in a spiral, then it starts to consolidate. Give the market some time to see if it continues its downward path by breaking the lows or if the trend is changing by breaking new highs.