In general, in trading in the forex market, there are various types of trading strategies and methods that you can use. In choosing a trading method, traders must adjust it to their abilities and personality. This is because if you use the wrong and inappropriate trading method, it can affect the destruction of your own trading activities. There are many types of trading strategies such as breakout trading, hedge trading, and others. However, in this discussion we will discuss what is trend following in forex?
Following means “following”, which can be interpreted as following, pursuing, pursuing, or adhering to. Likewise in the world of trading, follow means following the current trend. So adherents of this trading style look for trading opportunities in only one particular direction. Trend following has the characteristic of opening orders in the form of pending stops. Traders who follow trend following tend to focus on movements that are trending.
Trading with the trend following method means that someone analyzes prices by using technical analysis for forex trading, and determines whether the market trend is increasing or decreasing, then uses it as a basis for deciding to sell (Sell) or buy (Buy). For traders who use the trend following method in forex. The point is when the trend is up, it is an opportunity to Buy, while when the trend is down, it is an opportunity to Sell.
However, trading with this trend following method is not easy. When looking at the graph alone, novice traders are usually still confused. Therefore, in practice, traders who use this trend following method need to decide two important things before starting trading:
1. Technical analysis tools to be used
Among the popular indicators for the trend following method are Moving Average, Bollinger Bands and others. However, some traders also choose to trade without indicators. Instead of technical indicators, they only draw Trend Lines on the graph, or analyze the shape of the candlesticks that appear on the graph. The point is, whatever method you choose, either with or without indicators, both can be successful as long as you really master them.
The indicators that are widely used by traders who use trend following are as follows:
Moving Average
Previously we discussed the definition of Moving Average in the forex world which is so popular. Moving average is a very practical indicator when used in following the trend following method. Moreover, you only need two simple moving averages with periods of 200 and 50. This Moving Average is very strong in identifying good price reversals when the trend is strengthening or weakening. In addition, Moving Average can also be used as a signal for open and closed positions. To find out the price reversal is fairly easy and simple. If the Moving Average 50 cuts the Moving Average 200 from above, it means that the trend has turned into a sell trend. Likewise, if the Moving Average 50 cuts the Moving Average 200 from below, it means that the trend has changed to a buy trend.
Parabolic SAR
This indicator functions to describe the stop price point and price reversal and trend direction. So it can make it easier for you to use the trend following strategy. Moreover, this parabolic SAR indicator allows traders to be in trading at all times.
Bollinger Band
Bollinger bands are indicators that can help you measure market speed and estimate the range or range of price movements. This indicator consists of three lines that move following price movements. The three lines in question are the upper band, middle band and lower band. The point is that this indicator helps you recognize whether the market is busy or quiet, when the Bollinger band widens it means the market is busy, while if the Bollinger band is narrow and tends to move evenly it means the market is quiet.
You only need to learn how to use Bollinger bands which involve high-level mathematical calculations. You just need to learn how to use Bollinger bands practically so that you can use them to read opportunities from price movements. By being able to read opportunities for price movements, you can decide when is the right time to open a position following the existing trend
One of these trading methods is arguably the most popular and most widely used by traders, because this strategy is easier because it only follows the trend. In general, trend following users assume that trends tend to continue so that you will always open positions according to the direction of the previously formed trend. They assume that there is no price that is too low or too high because the price only moves in one direction continuously.
The first step in following this trend is to look at price movements in a larger time frame such as D1/day or more. Next, determine the direction of the trend that occurs by analyzing a smaller time frame, for example H4/4 hours can also be below it such as H1, M30, M15. After that, just wait for the opportunity to trade in the direction of the trend that occurs in D1 or more. The point is to find out the direction of the trend, use a larger time frame, then use a small time frame to wait for the moment and make transactions.
2. What time frame will the trend be seen?
Most traders will look at the chart on a larger time frame as a reference, then look at the chart on a smaller time frame for trading execution. For day trading, the reference timeframe is usually H4, then execute on the H1 timeframe. If the H4 timeframe shows an uptrend, while H1 is down, then this could be an indication of a price reversal, or just a short correction and the price will go up again. This needs to be assessed based on technical indicators or candlesticks that appear on the chart.
These two things are the basics of the trend following method that every trader needs to understand. However, only two will not make you successful. There is one tip for trend following that must also be understood, namely: “buy dips in uptrends and sell rallies in downtrends” which means you are advised to Buy when the rising price in an uptrend is being corrected down, and Sell when the falling price is reversing up for a moment.
Trend following is the best way to make money with currencies and it takes a little time to do it. To win using the trend following method, you must have the patience to wait for the right trading signals and the discipline to maintain this trend over a long period of time and ignore short-term pull-backs in equity against you. If you want to enjoy trading success, use the strategies of experienced traders and the best traders in using the forex trend following method for long-term profits.
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