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Whether trading stocks, futures, options, or foreign exchange, traders must decide whether to trade trend or range. And they answer this issue by analyzing the price environment; doing so correctly increases a trader’s chances of success significantly. Trend and range are two unique price qualities that necessitate nearly opposite mindsets and money management strategies. Fortunately, the FX market is well-suited to both approaches, providing profitable chances for both trend and range traders. Because trend trading is so popular, let’s look at how trend traders can gain from FX first.
Trend
What is the current fad? Higher lows in an uptrend and lower highs in a downtrend are the most basic indicators of trend direction. Divergence from a range, as illustrated by Bollinger Band® “bands,” is one way to identify trends. For others, a trend is established when prices are contained by a 20-period simple moving average that is slanted upward or downward (SMA).
Many forex traders choose to trade currency pairs based on current market conditions. Simply expressed, a currency is said to be going up or in an uptrend when it is clearly advancing in one direction with little opposition. Higher swing lows and higher wing highs are typical indicators of an upswing.
When their analysis implies there is an opportunity for more upward, traders seek to take advantage of a strong trend. Of course, a trend persists until it ceases to exist. To put it another way, a trend is your buddy until it breaks down and begins to exhibit erratic behavior.
Come In early
Regardless of how trend trading is defined, the goal is the same: get in early and stay in the trade until the trend reverses. The trend trader’s core thinking is “I am right or I am out.” All trend traders make the implicit bet that price will continue in its current direction. If it doesn’t, there’s no incentive to keep the trade going. As a result, trend traders often trade with tight stops and make numerous probative ventures into the market before making the correct entrance.
Learn more about "Should You Trade Trend or Range in Forex"
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Trend
What is the current fad? Higher lows in an uptrend and lower highs in a downtrend are the most basic indicators of trend direction. Divergence from a range, as illustrated by Bollinger Band® “bands,” is one way to identify trends. For others, a trend is established when prices are contained by a 20-period simple moving average that is slanted upward or downward (SMA).
Many forex traders choose to trade currency pairs based on current market conditions. Simply expressed, a currency is said to be going up or in an uptrend when it is clearly advancing in one direction with little opposition. Higher swing lows and higher wing highs are typical indicators of an upswing.
When their analysis implies there is an opportunity for more upward, traders seek to take advantage of a strong trend. Of course, a trend persists until it ceases to exist. To put it another way, a trend is your buddy until it breaks down and begins to exhibit erratic behavior.
Come In early
Regardless of how trend trading is defined, the goal is the same: get in early and stay in the trade until the trend reverses. The trend trader’s core thinking is “I am right or I am out.” All trend traders make the implicit bet that price will continue in its current direction. If it doesn’t, there’s no incentive to keep the trade going. As a result, trend traders often trade with tight stops and make numerous probative ventures into the market before making the correct entrance.
Learn more about "Should You Trade Trend or Range in Forex"
Fyl