Understand what a Forex Trend is

By Ahmad Hassam

It is important for you as a forex trader to identify and understand a trend in currency markets because they tend to be vicious and one way. Trends in forex routinely wipe out retail traders like you and me who commit the sin of trend fading.

FX trends start slowly and are the unintended consequences of another action in the global capital markets. For example, a booming stock market may lead to a massive forex trend in its wake.

Likewise, a global recession may force the investors to run towards save haven currencies like dollar in their flight towards safety. Similarly fall in interest rates usually forces carry traders to become risk averse.

So you will have to keep one eye on the macro situation to look where smart money is flowing. As trends in currency markets are fundamentally driven by the flow of smart money.

The longer the trend is going to last, the longer the correction and the consolidation is going to be. In other words, fundamentally driven trends do not take U-turns all of a sudden.

But when the public realizes that a trend has developed, it is always too late. The professional traders and hedge fund have long been in the trade and are ready to unload their positions on the retail crowd.

As the saying goes, a Newsweek cover is a kiss of death for a trend. Trends are important for an individual investor to understand.

Remember trend is your friend. Trend trading is one of the most popular trading strategies employed by professional traders including hedge funds.

The best strategy is to take a position in the direction of the trend. You can easily identify a trend in currency markets using multiple time frame analysis involving moving averages.

Once you have the trend identified, use Fibonacci retracement levels to enter and exit the trade. If you successfully execute this strategy, you can make a few hundred pips in a week.

About the Author:

You may also like...