One of the major problems in forex trends trading is that by the time the trend has been established it is often too late to enter a trade. Trends can be very difficult to enter early and as well hard to exit in real-time trading conditions, although trends are simple and appear apparently at forex charts.
Trading the beginning of a trend
One of the most solid aspects of trend trading in forex market is trying to establish when a trend is about to begin. Usually, trends in a new direction will begin with a reversal pattern and the majority traders will try to hold these positions as the trend maintains to make their position profitable.
Major reversal patterns for technical forex traders are double tops and bottoms, exhaustion indicators such as heavily oversold or overbought momentum indicators and breakouts. When it has been established the market is expected to begin trending in a new direction, and a good entry will be following that particular reversal pattern.
One of the major difficulties in trading these patterns is the possibility that once the pattern has completed the trader will be surprised by corrections as the new trend begins. As can be observed from historic chart records, trending prices do not move smoothly and the possibility for a position to be closed during pull-backs is must.
Trend trading with moving averages
Trading employing the crossover of two moving averages is a well accepted trend-following technique which works extremely well during back-testing. The difficulty with moving averages, however, is that they delay the real-time condition and provide delayed entry and exit signals as an outcome.
The benefits of using moving averages are that they can provide good signals for longer-term trends. Moving average trend-following strategies also may help to avoid whipsaws and false breakouts which are repeatedly experienced in trying to follow the beginning of a new trend.
Holding position on during the trend
The ability to carry a trade during a trend without any plan when this may end is indeed expected toward the more enduring trader. Indicators such as momentum oscillators will help with this and some traders like to make their position on the pull-backs right through an established trend.
Drawing trend lines will also facilitate you establish when the trend perhaps no longer be effective as this should act as a very dependable support level between the lows and highs of the trend.
Finally, I leave you with this slight but pretty formula:
The Best Trades = Trend + Price action signal + Confluent level