T trend trading is one of the most reliable and simple foreign exchange trading strategies. As the name implies, this trading strategy involves the direction of current price trends. In order to effectively utilize this method, traders must first establish the current trend direction, duration, and intensity. All of these factors will tell them how strong the current trend is and when the market may have entered a major reversal. In trend trading strategies, traders do not need to know the exact direction and timing of the reversal; They simply need to know when to leave the field and indeed lock in profits and limited losses.

Even when a market is in a trend, a trader should be prepared to bear some small losses and recognize that their profits will eventually exceed these losses, as long as the trend continues. For example, for some obvious reasons, trend traders prefer trend markets or relatively predictable overbought/oversold volatility.

Tools to be used

In order to determine the trend direction and intensity of the current market, traders often rely on simple moving averages and index moving averages, such as the Moving Smoothing Abnormal Average (MACD) and the Average Direction Index (ADX). All moving averages are lagging indicators that guide current market conditions based on past price fluctuations. In addition to providing internal information on the current trend direction and intensity, the moving average can also be used to determine support and resistance indicators. When prices fail to reach the expected support and resistance levels, or when a long-term moving average crosses a short-term moving average, it means a reversal signal. Instead of predicting a reversal of direction and entering new positions, trend traders will use these signals to set exits. Once a new trend has taken shape, trend traders will once again build positions in the direction of the new trend.

Price momentum changes before prices change, so momentum indicators such as random momentum and relative strength index (RSI) can also be used to help determine departure points. These indicators will help traders determine when prices enter overbought/oversold levels and provide intrinsic information when prices are about to change.

advantages and disadvantages

Trend trading does not require traders to know what will happen next - they only need to understand what is currently happening. So, this is a more reliable and sustainable strategy. It is very important to determine the direction and intensity of the trend in order to trade efficiently and before entering the market. Although you may not be the first person to open a position, maintaining patience will ultimately protect you from unnecessary risks.