What are the Best Forex Trend Following Strategies that Work? Find Out Here
Trend following strategies are simply trading approaches where traders trade in a trending market, and the directions of the trends decide the directions of their trade. For instance, if the price is constantly going up, the traders buy. If the price is continuously going down, the traders sell.
The fundamental idea behind trend training is that trades go in the market’s direction. The phrase “go with the flow” is precisely appropriate for trading. A Forex market is no different from a stream; swimming with the current would be relatively easy than swimming against it. Similarly, it’s only logical to move in the market’s direction compared to going against it. Experienced traders identify the market directions and trade accordingly.
So how exactly do you trade with the trend? There are many ways to follow this approach. Some traders trade at the start of momentum while others trade o retracements. Some use technical indicator signals, while some trade purely according to the price action.
- MA Retrace
For all the new entrants, it’s only rational to trade on pre-established trends. Looking at historical charts and using indicators can help traders identify the trends. Furthermore, you can also observe that once a trend is established, price movements are indeed pretty predictable than most people can imagine.
However, trading on these trends is still quite tricky despite the seemingly predictable movement patterns. Since most trend-following strategies require trading when the price is at the peak of the current expansion, following the trend can be rather challenging.
Traders should be trading on the retracements rather than buying when the market is at the peak of a bullish trend or the bottom of a bearish trend. It’s surprisingly easy to make money from a trending market when you have mastered the skill of timing entries on the retracements.
- Fisher Optimum
Using disruptions and realignments of confluences is another optimum means to identify trade entry opportunities. It can direct in the correct direction for temporary retracement and resumption of a trend. Needless to say, confluences are a crucial element for most trend-following strategies. The Fisher Optimum strategy uses an indicator to identify temporary retracements in an ongoing trending market condition.
Traders often determine that the confluence of factors results in a trend. Although there are some instances where some of these factors indicating trend direction could temporarily reverse, there’s no denying their importance. The reverse usually occurs due to a retracement. Albeit temporary, the trend may take a while to resume its initial direction once the confluences align.
- Fibonacci Pullback
Along with price action trading for technical analysis based on technical indicators, trading through price action is yet another great way of technical analysis that seems to work pretty well in the trading world. Surprisingly enough, some traders can vouch for trading with just naked charts and price action analysis.
The significance of trading via price actions means that it is purely based on analysis that theoretically lags to some extent. The only lag traders acquire while they await the candle to close. This provides the traders with an opportunity to enter with more efficacy. The one downside is that traders new in the industry find challenging is to identify compelling entries accurately. The skill takes lots of time, experience, practice, and not to mention, screen time. Once you master this skill, you can make your way in just at the right time and squeeze the highest number of pips in one trade.
Price action is indeed an effective trading strategy in a trending market condition. Trends can easily be identified as the market is likely to be making higher highs and lows on a bullish market or lower highs and lows on a bearish market. It enables traders to be more accurate with identifying trend direction.
- Channel Waves
Another remarkable way to trade based on this trend is by using indicators that have pre-existing channels. These indicators are pretty valuable for reversal traders, momentum traders, and mean reversal traders alike.
Traders trading with trend-following strategies can significantly benefit from these indicators as momentum. These indicators can also monitor trend direction while understanding an average price line depicted on the charts. As a result, traders can easily recognize the direction of trade and observe price retracements to trade on existing trends efficiently.
The Channel Waves allows trading setups established on the direction of existing entries and trends. It follows an approach based on retracements making their way towards the mean.
- Awesome Bollinger
Here’s a tip: enter the market once it starts to push with the momentum and trade effectively. Usually, substantial trending markets are portrayed by cycles of a strong momentum push in the direction of a trend, a temporary retracement action, a follow-up momentum push, and back with a retracement action. The cycle keeps repeating until the trend finally fizzles out.
Momentum ensures that the trend hasn’t died away and is still going on. Hence, it’s a great idea to trade right before a strong momentum push in a strong trending market condition. It allows traders to assume that there could be a higher probability of reaching a reasonable take-profit milestone. Another general assumption is that the price wouldn’t reverse as strongly any time in the near future.
The Awesome Bollinger affirms trend direction on the basis of reliable trend indicators and ensures trend indicators. It also provides entry signals based on momentum candles that point toward a robust momentum push.
These trading essentials can help traders make the most from the market and gain skyrocketing profits. It allows determining trading opportunities that could have been overlooked otherwise. Although none of these guarantee profits, they just guide you in the right direction and develop an understanding of the market behavior probabilities and observations. The key component for efficient trading is having an eye for the market pattern for the moment. Once you begin identifying the patterns, apply the correct strategies accordingly and own the market.