7 Facts About Trend Trading For Forex Beginners

Trend trading in the foreign exchange market is a simple strategy that can be accomplished by looking at chart actions.

Forex trend trading is a trading strategy that aims to profit from the directional movements of currency pairs over a sustained period.

It involves identifying and trading in the direction of an established trend, whether it is upward (bullish) or downward (bearish), and holding positions until the trend shows signs of reversal.

For a beginner in the industry, its convenience is an advantage. However, basic techniques may not always be the most rewarding ones.

If you've pictured a successful trade and maybe, a profitable trading career in the long run, why not find out more about the approach?

Here are 7 facts about trend trading in the foreign exchange market:

1. There are only 3 types of trends
2. Best for beginners
3. A trend can be determined even without any technical indicators
4. Trend reversals occur quickly
5. Help find entry and exit positions
6. The importance of identifying whether a trend is worth following
7. Raising stop levels

Read the following article for a more comprehensive explanation.

1. Three Types of Trends

In forex trading, there are three primary types of trends that traders commonly observe:

• Uptrend
  An uptrend, also known as a bullish trend, is characterized by a series of higher highs and higher lows. In this trend, the price of a currency pair is consistently moving upward over time, indicating a positive market sentiment. Traders who identify an uptrend may look for opportunities to buy (go long) and profit from the upward price movement.
  
  
• Downtrend
  A downtrend, also known as a bearish trend, is the opposite of an uptrend. It is characterized by a series of lower highs and lower lows.
  In a downtrend, the price of a currency pair is consistently moving downward, indicating a negative market sentiment. Traders who identify a downtrend may look for opportunities to sell (go short) and profit from the downward price movement.
  
  
• Sideways/Range-bound Trend
  In a sideways or range-bound trend, the price of a currency pair moves within a relatively narrow range, without a clear upward or downward bias. The price tends to oscillate between support and resistance levels, creating a trading range. Traders in a sideways trend may look for opportunities to buy near support levels and sell near resistance levels.

2. Trend Trading Is Best for Beginners

Trend trading is said to be an incredibly profitable strategy, especially for beginners. Since its approach is straightforward, it eliminates a load of confusion and doubts for the inexperienced cluster.

Beginners can focus on identifying established trends and trading in the direction of those trends. This simplicity can help beginners avoid getting overwhelmed with excessive trading strategies and indicators.

Trend trading also involves capturing longer-term trends, which means that beginners do not need to constantly monitor the markets or make frequent trading decisions.

This longer-term perspective allows beginners to gain experience and develop a deeper understanding of the market dynamics without feeling pressured to constantly make trades.

3. A Trend Can Be Determined Without Any Indicators

Even without a technical indicator, a trend can be determined accurately; if price action is found to affect a market, it is a strong signal of the existence of a driving conviction.

• Plotting Price Action
  Start by looking at the historical price data of a currency pair on a chart. Use a line chart or candlestick chart to visualize the price movements over a specific period.

• Higher Highs and Higher Lows
  In an uptrend, look for a series of higher highs and higher lows. A higher high occurs when a recent peak is higher than the previous peaks, and a higher low occurs when a recent trough is higher than the previous troughs.
  
  

• Lower Highs and Lower Lows
  In a downtrend, observe a series of lower highs and lower lows. A lower high occurs when a recent peak is lower than the previous peaks, and a lower low occurs when a recent trough is lower than the previous troughs.

• Horizontal Range
  If the price is moving within a relatively narrow range without clear higher highs or lower lows, it suggests a sideways or range-bound market where there is no clear trend.

4. Trend Reversals Occur Quickly

Trend reversals can occur quickly, but the speed and timing of a trend reversal can vary depending on various factors, such as the market conditions, the strength of the existing trend, and the catalysts driving the reversal.

In some cases, trend reversals can be swift and sudden, especially during periods of heightened market volatility or when there is a significant fundamental or geopolitical event that triggers a market shift.

Such events can lead to rapid changes in market sentiment, causing prices to reverse direction abruptly. Since trend reversals can occur quickly, your job is to formulate a decision quickly, too. 

Once you receive even the slightest hint that its direction is about to change, choose between two options: (1) establishing an exit point and (2) entering an entry point in a different direction.

5. Finding Entry and Exit Positions

Trends can provide valuable guidance to traders in determining entry and exit positions. Here's how trends can assist traders in this regard:

Entry Positions

• Trend-Following
  Traders who follow trends aim to enter positions in the direction of the established trend.
  In an uptrend, they may look for opportunities to enter long positions (buy) when the price pulls back or retraces to a support level or when a higher high is formed.
  In a downtrend, they may seek short positions (sell) when the price rallies to a resistance level or when a lower low is established.
  
  
• Breakout Strategies
  Traders can also employ breakout strategies, where they enter positions when the price breaks above resistance in an uptrend or below support in a downtrend.
  Breakouts from consolidation patterns or chart formations can provide entry opportunities with the expectation that the trend will continue.

Exit Positions:

• Targeting Profit Levels
  Traders often set profit targets based on the projected extent of the trend.
  They may use technical tools like Fibonacci retracements, trend channels, or previous swing highs/lows to identify potential areas where the trend is likely to encounter resistance or support.
  Traders can then exit their positions and secure profits as the price reaches these predetermined targets.
  
  
• Trailing Stops
  Another approach is to use trailing stops, which are stop-loss orders that adjust dynamically as the price moves in favor of the trade.
  Traders can set a trailing stop at a certain distance from the current price, allowing the position to remain open as long as the trend continues.
  If the price reverses and reaches the trailing stop, the position is automatically closed, locking in profits.

Since trend trading can help you establish strong entry and exit positions, it is considered a useful forex strategy. So long as you're aware of the sometimes abrupt nature of trend reversals, you can generate great profits in your exchanges.

However, brace yourself for the fact that trends end. Because, if they do, "the trend will no longer be your friend", as the classic saying goes.

6. Identifying Trend 

The most crucial step in trend trading is identifying a trend that's worth following. Evaluate its reliability by analyzing its nature, character, advantages, and setbacks.

Once it is determined, you can create a strategy involving the best entry and exit positions.

So, how can we know if a trend is worth following or not?

Here are some factors to consider when evaluating the viability of a trend:

• Strong trends typically exhibit clear and consistent price movements, with minimal retracements or counter-trend moves.
  Look for signs of robust momentum, such as steep price gradients, high trading volume, and strong breakouts from consolidation patterns.

• A trend that is evident and consistent across multiple timeframes, from shorter-term charts to longer-term charts, is generally more reliable.

• If the trend is supported by strong fundamental factors, such as positive economic data, favorable central bank policies, or geopolitical developments, it may have a higher probability of continuation.

• Consider using tools like moving averages, trendlines, MACD (Moving Average Convergence Divergence), or RSI (Relative Strength Index) to validate the presence and strength of the trend.
  When multiple indicators align and support the trend direction, it adds confidence to the trend-following strategy.

7. Raising Stop Levels

An effective trend trading approach is to raise stop levels; with the first entry position in mind, the strategy is to increase the entry position thereafter.

The idea behind it is to become risk-free in succeeding trades. Particularly, you should generate enough profit from an initial entry position to render less impact from a potential loss on a secondary entry position.

Those are 7 facts about trend trading that you should know. Trading using the trend is actually quite simple, even beginners can do it, as long as they have an adequate understanding of trading using the trend. You also have to prepare an important checklist before trading with the trend.