The truth and lies about forex trends
Updated: Feb 6, 2019
It is probably the most common adage in forex, "the trend is your friend".
Most of the prominent and respected authors and teachers promote the concept of trend trading, following the trend, buying when the price grows and selling when it falls. Many traders however, find it frustrating when applying this concept in practice.
They enter the market on a percieved trend and find it reverses and hits their stop loss, only to then restablish itself soon after.
So what causes this problem?
There are multiple reasons for this happening, here we will look at one of the most critical:
Incorrect determination of the trend type
There are three types of trend in the forex market:
1. Uptrend, a sequence of higher highs and higher lows
2. Downtend, a sequence of lower high and lower lows.
3. No Trend, also know as a range, where there is no well-defined direction.
As a general rule of thumb, the forex market tends to range around 70% of the time and trend around 30% of the time.
By not determining which type of trend is present at the time of placing a trade, the probability of a reversal becomes much more likely.
A better adage than "The trend is your friend" could be "Determine when to trade trends and when not to"
Traders who understand this, would then see that it is futile and exhaustive to try and "squeeze a trend" out of a ranging market.
Have a look at this system which is designed to clearly identify trends in the forex market.