Trend and trend following

It's a great release when you come to realize that the Forex market does tend to trend. The idea of this simple trading system is to spot the direction of the one, jump on board and rides the price wave like a surfer to the shore, then lie back on the beach with your profits soaking up the sun. Nice picture don't you think?

This is true for all kinds of time frames and to make it even more simple the market can and will only ever move in three directions, up, down or sideways. I don't care who you are or how successful a trader you can always rely on the market moving in one of these three ways.

Here is an example of the market trading up...

Here is an example of the market trading down...

You see water will always find the path of least resistance and as traders we should not try to fight this. Trading against the trend is also a risky business and for a newbie we would always recommend that you trade with it and never against it. Not that you can't make a profit for doing so but this is for the more advanced traders.

The first thing to do is to determine the direction of the market, where the market has been moving in a sustained direction for some time. It's a good discipline to draw a line on your chart to make it clearer how the trend is developing. There is plenty of suggested ways of doing this and I guess many traders would say different ways but we think if you use the method bellow to draw your lines you can't go far wrong.

As you can see from these two examples the line should be placed on or as close to the end of the price data, in these cases the ends of the wicks of each candle. Price should have met your trend line in at least three places. However there must be some give in the meaning of "meet" as the market does not ever move in an exact fashion. As you can see price in our example above actually goes slightly through the line before closing above it and in our example below price comes up to meet the line but falls again just before it does.

You should draw your line below price when the market is trading up.
You should draw your line above price when the market is trading down.

Return from Trend Following to Technical Analysis

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