Trading with the trend is one of the most fundamental rules you should abide by when trading the forex markets. So many forex newbies set their sights on the big profits by trying to call tops and bottoms of any price moves, but this can have a disastrous impact on your capital because you are trading against the trend.
Overbought and oversold positions arise in the forex markets all the time but just because a currency pair looks overbought, for example, does not mean that it cannot go even higher. If all currencies turned around when specific technical indicators indicated they were overbought or oversold, then we would all be rich, but unfortunately it's not that easy.
This is why it's much easier to trade with the trend. To spot the trend all you do is look at the price chart and if the price is making higher highs and higher lows it's in an uptrend, and vice versa for a downtrend. You can also use technical indicators such as Exponential Moving Averages (EMAs) or the Supertrend indicator to indicate which direction you should be trading.
If you are always trading with the trend then you are trading with probability on your side. By that I mean that even if your entry point is not that great, you will very often find that the trend will ultimately prevail and rescue your position.
An effective way of trading the trend is to use multiple time frames and look for instances where the the trend is in the same direction across each of these time frames. Then you look for an optimal entry point on the shortest time frame. For example, if the trend is up on the 15 minute, 1 hour and 4 hour charts, then a good entry point (for a long position) would be when the pair is temporarily oversold on the 15 minute chart.
Trading across multiple time frames in this way is one of the most profitable ways of trading the forex markets. Indeed my own trading system is based on following the overall trend on the daily charts and then looking for optimal entry points on the 4 hour charts, and it seems to work extremely well.
The important point to remember is that it's a lot easier to trade with the overall trend than it is to try and call price reversals all the time. Yes there are arguably bigger profits to be made by trading this way but it is extremely difficult. Remember that a trend is always more likely to continue trending than it is to reverse, so you know that you always have probability on your side when trading with the overall trend.
Click here to read a review of Forex Avenger and to discover lots of free tips and strategies relating to forex trading including the exact 4 hour trading strategy that James Woolley uses to trade the markets.
Overbought and oversold positions arise in the forex markets all the time but just because a currency pair looks overbought, for example, does not mean that it cannot go even higher. If all currencies turned around when specific technical indicators indicated they were overbought or oversold, then we would all be rich, but unfortunately it's not that easy.
This is why it's much easier to trade with the trend. To spot the trend all you do is look at the price chart and if the price is making higher highs and higher lows it's in an uptrend, and vice versa for a downtrend. You can also use technical indicators such as Exponential Moving Averages (EMAs) or the Supertrend indicator to indicate which direction you should be trading.
If you are always trading with the trend then you are trading with probability on your side. By that I mean that even if your entry point is not that great, you will very often find that the trend will ultimately prevail and rescue your position.
An effective way of trading the trend is to use multiple time frames and look for instances where the the trend is in the same direction across each of these time frames. Then you look for an optimal entry point on the shortest time frame. For example, if the trend is up on the 15 minute, 1 hour and 4 hour charts, then a good entry point (for a long position) would be when the pair is temporarily oversold on the 15 minute chart.
Trading across multiple time frames in this way is one of the most profitable ways of trading the forex markets. Indeed my own trading system is based on following the overall trend on the daily charts and then looking for optimal entry points on the 4 hour charts, and it seems to work extremely well.
The important point to remember is that it's a lot easier to trade with the overall trend than it is to try and call price reversals all the time. Yes there are arguably bigger profits to be made by trading this way but it is extremely difficult. Remember that a trend is always more likely to continue trending than it is to reverse, so you know that you always have probability on your side when trading with the overall trend.
Click here to read a review of Forex Avenger and to discover lots of free tips and strategies relating to forex trading including the exact 4 hour trading strategy that James Woolley uses to trade the markets.
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