I. The Forex Trading Trend is Your Friend
For some traders, learning forex trading is like assembling a car from scratch without an assembly manual. Many of you already have quality parts, such as brakes, tyres, engines, seats, and steering wheels, but when you try to put them together, it’s hard to create a perfect little car as envisioned.
To become a successful car assembler, you need the right parts and the correct assembly manual to put all the parts together properly so that the car can run. The same principle applies to becoming a successful trader.
II. Trade the Trend Until the Forex Trading Trend Ends
Forex trading is quite different from stock trading. A company might file for bankruptcy or shut down completely, causing its stock price to drop to zero. However, there is no threat of national bankruptcy in forex trading.
Countries don’t go bankrupt to the point where their currency becomes worthless. What is more likely to happen is a drastic change in the economic conditions between countries, which can cause significant fluctuations in the value of one currency relative to another, bringing incredible financial returns to insiders and traders educated in forex trading.
As shown in the following charts, let’s study the trends of these four charts. As shown in the Chart below, the euro fell 440 points in three months; shorting one lot or investing $1,000 could create a profit of $4,400. $10,000 could bring a return of $44,000!
As shown in the Chart below, the Swiss franc rose 500 points in four months; going long one lot or investing $1,000 could create a profit close to $5,000, and “close” because the point value of the Swiss franc is not fixed at $10, it fluctuates.
In the Chart below, the British pound fell 700 points in three months; shorting one lot or investing $1,000 could create a profit of nearly $7,000.
In the Chart below, the US dollar against the JPY dollar rose 800 points in four months; going long one lot or investing $1,000 could create a profit of nearly $8,000. The point value of the JPY dollar also fluctuates.
Trends occur in all time frames, including monthly, weekly, and daily charts for long-term trading, hourly charts ranging from 8 hours to 1 hour for day trading, and even minute charts from 60 minutes to 3-5 minutes for scalping.
Therefore, identifying trends that last for hours suitable for scalping, days suitable for day trading, or months suitable for long-term trading will bring huge financial returns to skilled traders who have received forex trading training.
Forex trading operates 24 hours a day, and during these 24 hours, you can sit down at your computer and trade at any time. The first step to successful forex trading is determining market direction. In fact, if you want to profit from forex trading, you must hold either a long or a short position, but not both at the same time. Holding both long and short positions simultaneously cannot be profitable because the profit and loss generated by each point fluctuation are the same, so your net position is actually zero.
A person’s character determines their trading style. Aggressive people like scalping, while conservative people prefer long-term trading. It’s very important to figure out your trading style before trading.
However, whether you are a conservative or aggressive trader, you must determine the market direction before trading. You need to learn how to identify the current trend before entering the market because you should always trade in the direction of the trend.
Never trade against the trend! Trading against the trend is like swimming upstream in turbulent waters, which is of no benefit. Traders can make many mistakes, and one of the most serious is getting the trading direction wrong!
It’s best to use trading software to determine market direction, such as MT4 and MT5, which have indicators that automatically display the trend to track the trend direction in any time frame. As shown in the chart below, as the market operates, the trend line follows closely, and you can see that the exchange rate continuously bounces up from the short-term trend line.
For example, after July 28, 2023, the short-term uptrend line was broken, the market approached the medium-term trend line, then rebounded from there, and the uptrend continued. In the Chart, the medium-term trend line was broken around Nov 21, 2023, before triggering a major trend reversal.
If you are an active forex trader using trading software without a moving trend line indicator, then you need to learn the skill of drawing the correct trend lines—the key is “correct.” Whether a trade is profitable may depend on whether the trend lines drawn are correct. Drawing trend lines is a skill that can be learned, but I believe it’s best to have an automatically displayed trend line on your trading software that continuously tracks the trend you want to monitor.
The focus is on finding, drawing, and monitoring the following three trend lines:
- A short-term trend line
- A medium-term trend line
- A long-term trend line
These three trend lines appear in all time frames, in both uptrends and downtrends.
The forex market has only three directions of movement: up, down, or Consolidation. Whichever it is, it operates like waves. These wave-like movements often go against the emotions of most traders. For some traders, it takes years to become familiar with and trust these waves and to trade in their direction to achieve their trading goals.
Uptrend and downtrend lines not only indicate the market’s direction but also act as stages of support and resistance. A downtrend line is a potential location for the market to bounce back down in a downtrend, while an uptrend line is a potential location for the market to bounce back up in an uptrend. Regardless, trend lines are one of many factors that increase the probability of trend continuation. The key is to seek confluence in the guidance of trend lines.
Here are some tools often used when considering entering the forex market:
- Trading software that determines trend direction through buy and sell signals
- Bullish and bearish candlestick patterns
- Support and resistance levels
- Past resistance lines often become future support lines, and vice versa
- Trend lines often act as support and resistance, and are potential locations for the next trend bounce
The more information you collect about the market bouncing in a certain direction at a certain price level, the greater your chances of successful trading. No matter how important a trade may seem, ultimately, every trade should be conducted under the principles of capital management.
Even if you have 15 reasons supporting the forex market bouncing in the direction you believe, if the trade does not meet the principles of capital management, you should discipline yourself to cancel it. Trading, like life, is always a choice between risk and reward.
