Any forex trader can quickly learn to locate the trends of the forex market with some easy to set up moving averages. Trading forex trends on the larger time frames will ensure that traders always have a good level of success by not going against the market. Applying some filters will help you to locate a profitable entry point into the trends.
Benefits Of Trading Forex Trends
The benefits of trading forex trends are numerous. The forex market is a trending market. Most trend cycles tend to last for several days and can go on for weeks and some times months. Getting into a trend and riding the trend, letting the trend do most of the work is a sharp contrast to trying to scalp 10 pips every day. Trading forex trends on the higher time frames will result in less trades and more pips per trade. Even novice forex traders know that the pips are in the larger trends, they just need to adjust their style to capture more pips. Amy trader can inspect trend cycles on the H4 time frame or larger over time to prove to themselves that trend trading is the place to be.
Set Up The Moving Averages
The next thing we need to do is to set up our trend indicators. In order to locate the trends on the forex market you should first set up some moving averages. These simple trend indicators are not complicated to set up or interpret. These are some basic exponential moving averages with two colors, green for the 5 period and red for the 12 period. You can set up these trend indicators up on almost any forex charting platform. Some of the images you see in this article will show you the trend indicators set up on a Metatrader platform. The trend indicators can be set up on any pairs you wish, including the 28 pairs comprised of the eight major currencies we follow on a day to day basis. The eight major currencies are the USD, CAD, EUR, CHF, GBP, JPY, AUD and NZD.
Locate the Trend
Now that we have a set of trend indicators, we can work on locating any exiting trends. When looking for trends always start with the largest time frames like the MN and W1 time frames and work backwards through the smaller time frames. Drilling down the charts and trends this way is called multiple time frame analysis.
If you find strong trends with the larger time frames all pointing in the same direction, this is good news for any trader who intends to always be trading forex trends. For a pair that is trending up the red and green lines on the moving averages will be pointing up and separated, for a pair that is trending down the moving averages will be pointing down and separated on that particular time frame.
Filter With Support and Resistance
The experience of trading forex trends can be enhanced by filtering potential trade with support and resistance. Look at the example below. This is the GBP/AUD pair, it is trending down on the W1 time frame. So you have located a pair that is trending down, now you would like to filter support levels to see how many pips you could possibly make by selling this pair.
In the example below the GBP/AUD is trending down on the W1 time frame, which is a large time frame. This pair could trend much lower and the next support level is hundreds of pips away, this is a great trend trading opportunity. You could set a price alert at around 1.7700, it has 800 pips of potential below there, which is fantastic. Superb pip potential compared to any scalping methods.
If a pair is in an uptrend on one of the larger time frame you could do the same thing by filtering resistance levels, since you are trading in the opposite direction.
Locate The Trade Entry Point
At this point you know the direction of the trend, the time frame, and the pip potential. Now you need an entry point to sell this pair. The final filter is the entry point into the trend. When you have a break of support or resistance on any currency pairs it is easy to be notified with an audible price alert, which can easily be set on most trading platforms.
When you get the alert, you need to verify the buy or sell entry into the trend. In the example above the GBP/AUD is trending down on the W1 time frame. If you were to get a price alert that support was broken on the GBP/AUD at the first support level, denoted in yellow, you would then check the entry signal to make sure you have a valid entry point. Then you can enter the trend safely and start to ride the trend for several days or possibly longer. The signal system you see below is The Forex Heatmap®, in this case the GBP is weakening and it is likely safe to sell the GBP/AUD.
This image shows an example of GBP weakness, and this signal would validate the entry point into the larger downtrend on this pair. You would then execute a trade to sell the GBP/AUD, in the direction of the trend.
Non Trending Markets
If you are interested in trading forex trends you have to realize that sometime the forex market is not trending. In this situation many pairs may be ranging or oscillating. In this case you can trade pairs in wide ranges and the shorter time frames. In this case your risk to reward ration is lower on each trade and tools like The Forex Heatmap® become more value, along with money management skills. Moving forward from scalping the forex market is certainly possible with the tools and indicators in this article.
To contact Mark Mc Donnell you can email him at Forexearlywarning.com.