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Forex Trend Trading
In trend trading, the traders try to profit from trends that may last from weeks to months and even years. Some of the most successful traders in the world, including John W. Henry, William Eckhardt, Bill Dunn, and Richard Dennis, have used trend trading strategies very successfully for decades. The trading approach is based on the past experience that most markets seem to fluctuate in terms of long term trades, with a range of range-bound volatility within the trend. Systematic trading approaches that try to profit from these trends usually have provisions to allow the trends to form and range bound volatility to occur within the trend without exiting the trade prematurely. One example of trend trading signal system are so-called breakouts, where the trading signal is based on the (bid or ask) price exceeding or being less than price on x number of trading days. The bigger the x, the longer term trading signal is in question. However, entry and exit signals are just one aspect of any true trading system, which incorporates various aspects of money management (how much to risk, when to decrease risk, increase risk, and so on). Forex Trend Trading StrategiesSome traders prefer to use technical analysis for their trend trading systems. This approach is based on the assumption that prices reflect all available information, trends occur, and future cannot be predicted. Technical analysis is a tool for generating trading signals, based on mathematical methods that use past prices and other financial data available from the market (such as volatility). Another approach is to use fundamental analysis for trend trading purposes of the foreign exchange market. With this approach, you build your views based on the fundamental data available which affects the currency movements. Based on that data and views of the future of those data sets, traders place their trades according to the way they see the currency pair to develop over the medium to long term. Some call this type of trading forex investing to highlight the point that it builds upon the fundamental strenghts or weaknesses in the currencies with a longer view.
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