Forex Trend Following Strategies

Forex Trend Following Strategies

To get the best results with Forex trend following strategies, you need to be patient and willing to allow the profits to develop in your trades. You are looking for a profit ratio that is multiple times of your risk, so you should never cut your profits short by taking them prematurely. This requires a longer term view of the market, as well as the right application of Forex trend following strategies for the best chance of success. Here are my best tips and strategies to help you to become a successful trend follower in Forex.

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Selecting Your Markets And Defining Your Time Frame

If you want to be successful in using Forex trend following strategies, then you need to select the right markets and time frame for your trading. Why do I say select the right “markets” instead of “market”? If you are a trend follower, you cannot limit yourself to only trading one currency pair because you never know when the one pair will trend and when it will simply go sideways. The more currency pairs that you observe, the more chances you will have of catching a profitable trend and reaping the rewards. I would recommend the EUR/USD, AUD/USD, USD/JPY and USD/CAD if you want to start out with trend following, but you should look to add more pairs over time as you gain the necessary experience of handling multiple pairs at the same time.

If you are applying Forex trend following strategies, you should view your price charts in the hourly or half hourly timeframes at the very minimum. You should also have a higher timeframe of 4-6x your current timeframe open to have an idea of the longer term trend of the market. Personally, I like to use the 30 minute timeframe to do my trading and the 4 hour timeframe to do my analysis of the longer term trend. I know of others who have had success in using the 1 hour timeframe and even the daily timeframe to do their trading, so it’s up to you to define your own preferred timeframe and stick with that. You should avoid the 5 minute timeframe though, because the trends within the 5 minute timeframe tend not to sustain for the prolonged periods required to ensure a positive return in the long run.

My Personal Forex Trend Following Strategies And Tips

Now that you know the best markets and times to apply Forex trend following strategies, here are some of my own strategies and tips to help you get started. First of all, I like to use the simple moving average on my charts to tell me what the average price is, and I use a fast moving average of 5 periods and slow moving average of 20 periods respectively. If the overall long term trend is bullish, then I will enter a long trade on a pullback to the average price to minimize my risk. If the trend ends and reverses, then my loss is minimized and I can simply move on.

As far as stops and exit points go, as a trend follower you should always be willing to give your trades room to develop and grow. As such, you will never be able to pick the top of the move, nor should you try to. Personally, I place my stop loss point just below the latest swing low of the move, as a definition of a trend move is one with consistently higher swing highs and higher swing lows. If you wish to pursue a more aggressive profit taking exit, you can get out once the trend has made a lower swing high as well as this would be an early indication that the trend may be over.

Interesting Video that Explains how to Follow Trends in the Euro/USD:

The Final Word On Forex Trend Following Strategies

In summary, as a trend follower you should never be hasty to take your profits. Instead, you need to be patient and follow the rules of Forex trend following strategies to reap the maximum profits from your trades. Most importantly, you should stay out of sideways markets because these will kill your trading profits for sure.