Learn Forex Trading Trend Following Strategies - Trend Following
A trader must create a forex trading strategy that they stick to when trading the online FX trading market. A trader must have the discipline to follow the rules of their trading strategy at all times. That's why it is better to come up with trading strategies which are profitable - profitable systems will be a lot easier to follow and stick to. This is because a trader knows that by following the rules of their system they will be successful.
A carefully designed trading strategy which has been back tested and proven to produce profitable results is one of the keys to becoming successful when trading the FX trading market. This type of strategy will make it easier for trader to follow the rules of their trading strategy because they already know that the trading strategy is profitable, therefore maintaining the discipline to continue following the trading system will be much easier.
Successful forex trading strategies will also include:
1.Money management rules
2.Forex Psychology Mindset
These 2 will greatly improve the success of any trading system.
However, Let us look at price action strategy before explaining more about forex money management & forex psychology.
Trend Following Strategies
Trend following strategies are based on first of all determining the overall market trend, whether the market is moving upwards or it is moving downwards. After determining the market trend the trader will then only open trades in one direction.
Upward trend - in an upwards trend prices keep moving up, and here the trader will keep opening buy trades.
Downward trend - in a downward trend prices keep moving down, and here the trader will keep opening sell trades.
There are various strategies of determining the market trends and the two most popular ones are:
Trend lines - traders will draw trend line on the price chart to determine the current general market movement. Once the trend direction is determine a trader will then open trades once the price touches the trend line or when price is close to the trend line. The trader will only open trades in direction of the trend.
When markets form trends, the trend will have a lot of momentum and this momentum will mean that the prices will keep moving in that direction for a period of time that lasts for quite some time.
Trading the trend is one of the most profitable way to trade the forex market if a trader catches a trend that has already formed they can make a lot profit just by trading in direction of the trend and the longer the trend stays the longer a trader can continue to make profits. Some major trend might last for years & these can prove to be the most profitable trading setups especially when they last for years.
Moving Averages Strategies - Another trend identification strategy is the use of the 20 day moving average, and when prices are above this moving average the market is bullish and if prices are below this moving average the market is bearish.
The 50 day moving average is also used for determining the medium term forex trend, while the 200 day moving average is used to determine the long term trend of the market.
Traders can also use two moving averages to form the moving average cross-over method, this technique will have a shorter period moving average and a longer term moving average and these two will be use to determine the current market trend. For example a trader can use the 5 day and 7 day moving averages, & for this strategy the trend is upward if both these moving averages are heading in the upwards direction & the trend will de down if both these two moving averages are moving downwards.
This system will indicate the trend is about to change one these 2 line cross over each other. This signal will be a god time to close trades if a trader has open trades.
Forex Strategies Tips
Once a trader has come up with their strategy, they should also include the following so that to make their trading strategy more successful.
1.Money Management Rules
2.Forex Trading Psychology
Money Management Rules
Money management rules should be part of your forex trading strategy - these rules will help you as a trader to manage risk. This means that you will use two rules of forex money management - these are risk : reward ratio & drawdown reducing technique when placing your forex trades to determine the lot size that you will open in the market. The most popular money management rule use in forex & the one that you should also add to your trading plan is the rule which says a trader should never risk more than 2% of their account balance on any one single trade.
To learn more about these two forex money management rules, traders should read the money management guide that is on the learn forex trading courses section of this site under the forex key concepts lessons.
Forex Trading Psychology Mindset
In order to become successful when trading the forex market a trader has to learn about forex psychology. The forex psychology or mindset that is required to become successful in forex trading is one that avoids the emotions of fear & greed while trading the market & is a mindset of total discipline that a trader will follow all their rules & their forex trading strategy & only trade with signals that are generated by their forex strategy. With discipline a trader will not trade unless their strategy gives a trading signal. A trader will have the mindset of only following their trading system 100% all the time without second guessing the trading system. A disciplined trader will also not place trades in market just because the currency market has started to move upwards or downward, instead a trader will wait for a trading signal to trade to be generated by their forex trading strategy.
In order to study more about forex psychology and how to manage emotions while trading the online forex market a trader can read the forex trading psychology tutorials from the learn forex trading courses section of this site under the forex key concepts tutorials.
