Spot Forex Trading Part 1: Trading with the Trend

This article is Part 1 of a series of 9 articles dedicated to help anyone to trade the foreign exchange.

There are a lot of books available on trading the markets in general. Many of the books focus on always trading with the trend. The book by Michael Covel is excellent and I strongly recommend reading it.

If anyone attempts to trade the spot forex the very first task at hand is to determine if they currency pair they are buying or selling is in a trend. The next step would be to wait for an entry point into the existing trend and ride the trend as far as possible.

How far is as far as possible? Well, the stronger the trend the longer you ride it. Short term trends are fine too but the length of the move will not be as far and your trade entries will be more frequent. If you trade larger trends you will trade less frequently and ride each trade much longer. The choice is yours.

Trend indicators and tools are available in commercial packages, trading platforms and software packages. Many of them are good but not well understood.

If you always trade with the trend you will always enjoy some level of success. I can equate trading with the trend to sailing with the wind instead of against it.

On the other hand ignorance of the trend will cause an insurmountable obstacle to profitable trading. If you don't know what the trend is for the currency pair you are trading you will never consistently make money trading the spot forex.

What is worse is that if you make a trade on the spot forex and have a profitable trade or losing trade you wont be able to pinpoint why.

Always knowing the trend and always trade in the direction of the trend.

Being a trend trader is NOT scalping, and it is NOT trading the news. If you choose to scalp the spot forex knowing the trend is still extremely beneficial. Most scalpers eventually quit scalping because it is too tiresome and eventually become trend traders anyway, so why not start out where you are going to wind up??

Also if you trade the news you can also do this in the direction of the trend and it is amazing how often the trend is right about an expected news event, so why risk ever trading against the trend at all.

Also its common sense. Trading against the trend or when there is no established trend will only cause grief and losses.

If no trend is present on a currency pair it is usually range bound. This means that the pair is trading in a small or large pip range and appears to be bouncing up and down within the range. It cannot move higher or lower because it is stuck in the range.

When the pair moves up and down within the range two things are possible. One possibility is that the pair is bouncing up and down in a ragged fashion that is difficult to trade. The second possibility is that the pair is oscillating in clear smooth cycles up and down within the range. When a currency pair is oscillating it can be traded fairly easily. Just wait until it reaches the top or bottom of a cycle and trade it when it starts going the other direction. This occurs very frequently in the spot forex. When a pair is in a smooth oscillation even a beginner trader can trade these oscillating pairs very safely.

So now we have our foundation for trading the spot forex. We must always trade with the trend. Traders who go with the trend will always have some level of success. Consistently trading against the trend or ignorance of the trend will result in consistent losing trades.

References

(1) "Trend Following, How Great Traders make Millions in Up or Down Markets", Michael W. Covel.