Forex trend trading means looking for price changes in a specific direction, and then placing orders at the starting point of the trend as much as possible. Then, wait for the trend to run, and leave the market at the end of the trend as much as possible.
Trend trading sounds very simple, but like many things in foreign exchange trading, it is not. You will hear some foreign exchange traders say that “the trend is your friend”. The problem is that this is only the first half of the expression, the whole expression is “The trend is your friend until its end.”
Indeed, foreign exchange traders must adapt to the trend, because the challenge of foreign exchange trend trading is to identify the strength of the trend, and then determine the entry and position points.
Technical analysis is based on the assumption that there will be a trend in price, and the trend line is a very important tool to verify and confirm the trend. A trend line is a straight line connecting two or more high and low prices. After this straight line is extended, it is used as a reference for future resistance or support prices, so many theories that apply to resistance and support are also applicable to trend lines.
Forex trend line trading strategy
The trend line is the simplest and most important analysis tool in all transactions, but unfortunately many investors do not make full use of the trend line to a large extent. Extending the line of key highs or lows is the most objective way to determine whether the market is in an uptrend or downtrend. This step can also help investors determine support and resistance levels.
However, the delineation of trend lines is usually subjective, so trend analysis can be regarded as an art rather than a science. When drawing a trend line, the more contacts on the line, the stronger the trend line, and the more effective the price response from the trend line. Take the U.S. dollar index in the following figure as an example. The upward trend line implies that the exchange rate outlook is optimistic and you can enter the market. Usually the exchange rate is the best time to enter the market after falling back to the support point on the trend line. Similarly, if once the trend line is broken, it means that the exchange rate will fall sharply, the support line will turn into a resistance line, and market behavior may also change.
Take the AUD/NZD as an example in the following figure, the trend line can act as a support line and a resistance line at the same time. The exchange rate fell sharply after falling below the trend line in December 2014. At the beginning of 2015, it tried several times to break the trend line but failed. After that, the exchange rate rose sharply after breaking the resistance line in June of the same year, and the resistance line changed again. For the support line.
The key points of the trend line:
*Two-point doubt, three-point confirmation: This means that any two highs or lows can form a trend line, but the trend can only be confirmed when three points are on the same line.
*Evaluation breakthrough: When using a trend line as a trading strategy, investors often assume that the trend line is valid. So how to confirm whether the trend line is valid? According to economic laws, for swing traders, the intraday closing can be used to confirm whether the trend line is valid.
*Breakthrough/break through the trend line, the exchange rate will accelerate upward/downward: Generally speaking, if the exchange rate breaks/falls below the trend line, the exchange rate will move in that direction faster. Of course, under special circumstances, the exchange rate does not maintain the current after breaking through the trend line Trend, this situation is called “false breakthrough”.
*Don’t pursue a breakthrough too much: Generally speaking, investors can make a profit as long as they grasp the trend line, but there are also some bold investors who seek to break the trend line. According to the different exchange rate trends, there are two situations in which the transaction breaks the trend line: One , When the trend line serves as the support line, wait for the fall to test the support level to enter the market, and set the stop loss below the previous low; second, when the trend line acts as the resistance line, wait for the rise to test the resistance level to enter the market and go short. The stop loss is set at the previous high.