How To Spot Trends & Take Advantage Of Them

Firstly, what is a trend?

A trend is a general direction of which price is going whether it's bullish or bearish and it shows the main direction in which money is flowing. If a trend is going up you’d probably want to look at buying the market and vice versa if the trend is going down. But why is that so important? If you follow the main flow of the market you’re much more likely to be in the right as you’re going where the big money is and following that main general direction. If you’re always trying to go against the big money (trends) you’ll find that you probably get stopped out more so than you’re comfortable with.

Now, in Forex the market only trends around 30% of the time and the other 70% it stays in a consolidation state but for the 30% of the time that it does trend if you take advantage of that you can make some very nice profits! As a trend trader, we generally like to mix it in with being a swing trader to, so trades are held much longer than the typical day trader as you’re trying to extract as much as you can out of the market to take advantage of the fact that it only trends 30% of the time.

Now the big question is, how do we identify a trend?

This is where the moving averages come in handy as we can easily use them to identify a trend without having too much analysis on our charts. Now, writing this I’m already assuming you know what moving averages are if not then check out this video https://www.youtube.com/watch?v=03vs7hEn81E where I explain the simplicity of them.

Now, I like to use the 20, 50 & 200 EMA to find a trend. What I look for is the order they’re in, the angle they’re in and the separation of the moving averages (OAS)

when the 20 is below the 50 and 50 is below the 200 then we’re looking for price to continue to the downside

Take this diagram for an example, you can see the angle of the moving averages are pointing at a 3, 4 & 5 o’clock direction, the order of the moving averages are down and there is a nice and wide separation between them meaning that the trend is nicely down. So, now that we’ve found the direction of the trend how do we actually trade it?

Basically, this is where the power of moving averages comes in as they work as dynamic support & resistance. In fact, using dynamic support and resistance can be far more beneficial than using the traditional horizontal levels as it is much less subjective when it comes to looking for trade opportunities.

The simplicity of using these 3 indicators in your trading can change the way you trade, help you get rid of all that complex analysis on your charts and help you identify trades much quicker.

If you’re interested in learning the exact way I trade and the exact way I stay consistently profitable in the Forex market don’t be shy to check out our membership service and what we can offer you. Please follow this link www.forex101.com.au/membership

Until next time, stay profitable and trade safe!