FOREX trading tutorials - Forex Trend
Trading
Strategies
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In this tutorial we will
discuss Forex Trend Trading strategies.
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Trend
Following Strategies
This
is the most well known and popular forex trading strategy. It looks
enticingly easy but is deceptively difficult. Traders look at a
historical chart and think that it if they had bought at the beginning
of the trend and sold at the end of the trend, how much money would
have been made. Unfortunately capturing the whole movement of a trend
is very difficult if not impossible. It is very difficult to enter the
market at the exact time when a trend begins and exit exactly when the
trend has exhausted and is about to end. Here are some characteristics
of trend following strategies, to decide if it is really a strategy
that you would like to use.
- It is said that around 70-80% of the time
the forex or any other markets are trendless, either trading in a range
or sideways. That means that if you are following a trend following
strategy, you will need to be patient to wait for a trend to
develop.
- When trends develop, they are often
strong, powerful and sustained over a period of a relatively short
period of time. This means that if you are following a trend following
strategy, you need to make sure that you catch every trend.
- It is difficult to identify the beginning
and end of a trend. This means that you will have many false entries as
your system seeks to identify a trend, but turns out to be a false
signal. Although there are many false signals, making sure that the
trend following strategy catches a trend when it eventually develops,
will offset the many losses from false entries
- A trend following strategy will have a
low win rate. That means that only a small percentage of trades will
turn out to be successful. You need to be comfortable and understand
that. In a good trend following system, the winning trades however will
offset the losses to produce an overall profit.
- Following on from the last point, you
need to be prepared that the low win rate means that in most of your
forex trades, you will lose money. You may for example lose money in 6
out of 10 trades. That can be very hard for some people to take.
- Forex Trend following strategies can be
very profitable over the long term. You must be prepared to wait for
the few trends that will make most of the money.
More about Trend Following
Strategies - The indicators that are used
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