Trend trading is an important strategy applied by many investors in the Forex market. This strategy offers many potential opportunities and high profits, as well as limiting trading risks. In this article, let’s join Forex Trading to see in detail how to apply Trading strategies with technical analysis tools and indicators (trendline, MACD, SuperTrend, MA).
Learn how to Trade with trends
Before delving into how to apply trading strategies in the Forex market, you need to understand some of the characteristics of the strategy.
Trend Trading What is the market?
Trend-following trading is also known as trend-following. This is a method that focuses on identifying, evaluating, and analyzing short-term or long-term price trends in the market. Thereby, traders can make reasonable and correct trading decisions. Specifically, traders will place buy orders when the market enters an uptrend and place sell orders when they notice a downtrend.
Common types of trends in technical analysis
In Forex technical analysis, there are 3 common types of trends that investors need to pay attention to:
- Uptrend: Price creates the next peak, the next bottom is higher than the previous peak and previous bottom.
- Downtrend: Price creates the next peak, the next bottom is lower than the previous peak and previous bottom.
- Sideways price trend (or no trend): The next peak and next bottom of the price chart are equal to the previous peak and previous bottom. This shows that the prices in the Trading chart are kept at a stable level, not increasing/decreasing suddenly.
See more: Learn Dow theory for trading beginners
Instructions for determining market trend lines accurately and effectively
To effectively determine market price trends, investors can use technical analysis indicators such as MACD, SuperTrend, moving average or trendline.
Apply moving average MA
Combining trend following and 3 moving averages can provide objective, accurate trading signals, suitable for beginner traders. How to apply this strategy is as follows:
- Determine the market price trend: The closing price is above the 50 MA line, signaling an uptrend. On the contrary, a downtrend appears when the closing price is below MA 50.
- Determine when to buy assets: When you notice that the market is trending up, the closing price will be above MA 50 and MA 9 will cross above MA 21. Traders should place a buy order immediately.
- Determine when to sell: As soon as the market tends to decrease, the closing price will be below MA 50, and MA 9 cuts to MA 21. Traders need to place a sell order.
- Find take profit and stop loss points: Investors often use the intersection point between MA 9 and MA 21 to enter take profit and stop loss orders. The stop loss level is about 3 – 7% compared to the support (buy order) and resistance (sell order) levels.
In addition, traders can also use trailing stops to ensure profits if the price increases sharply. At the same time, place stop-loss orders at the nearest support levels before the crossover point appears.
Use MACD indicator
The MACD moving average convergence divergence indicator helps investors identify buying and selling points at good price zones. How to apply this indicator is as follows:
- Determining price trends: If MACD crosses the Signal line, the market shows signs of reversal. In particular, if MACD crosses above Signal, the price tends to increase. On the contrary, MACD crosses below Signal, showing that the price is trending down.
- Find a buy point when the MACD indicator crosses above the Signal signal and MACD > 0.
- Find the selling point when MACD crosses below the Signal signal and MACD < 0.
Combine trendlines to identify and trade with the trend
In technical analysis, trend lines are used to identify and predict future price trends. Besides, the trendline also acts as a resistance and support line. To use trendline, you can refer to the method below:
- Identify price trends in trading charts: Traders connect two or more peaks and troughs together to form a trendline. If it is an uptrend, the next peak and bottom will be higher than the previous peak and bottom. If the price enters a downtrend, the next peak and bottom will be lower than the previous peak and bottom.
- Determine the buy point: When the price touches the support line, the trader enters a buy order.
- Determine selling point: Place a sell order when you see the price touching the resistance line.
Apply the SuperTrend indicator
The SuperTrend technical indicator helps traders identify market trends and price fluctuations. Besides, this indicator can also predict reversal points for traders to place take profit and stop loss orders. Here’s how to use SuperTrend when Trend trading:
- Identify selling points: If the market price is below the SuperTrend indicator and the indicator turns red, this is a sign that the price is reversing from increase to decrease. Traders can place sell orders right now.
- Identify buy point: The price is below the SuperTrend and the indicator turns green indicating the price is reversing to the uptrend. Traders can place buy orders.
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2 effective Trend trading ways that traders need to know
Below are ways to apply popular and effective Trend trading strategies. Traders can refer to this for application in the Forex market.
Technical analysis and adjusted price basis to place buy orders
In this case, traders will buy when the market price begins to show a short-term decline. However, this price still maintains a long-term upward trend. The method of buying when the price is adjusted helps you optimize prices with low capital and is also suitable for large capital that needs to be disbursed slowly. However, the risk control ability of this method is quite poor.
To identify potential support areas, traders can use tools and indicators such as:
- Moving average MA.
- Thang Fibonacci.
- Based on the previously available price base.
Wait for the price to break out and trade the market trend
This is a method in which investors will buy when the price shows signs of a short-term breakout, creating a new peak higher than the old one to maintain a long-term upward trend. The method of buying when the price breaks out helps traders optimize capital turnover and easily control risks in trading.
However, the limitation of this method is that it is difficult to disburse assets with low liquidity. In addition, if you want to increase prices quickly, you must accept the risk of chasing high prices.
Conclude
Above is the trend trading strategy that we want to share with readers. Overall, this is a relatively effective strategy, easy to apply for new traders starting to venture into the Forex market. To update more new and useful knowledge about investing and foreign exchange trading, don’t forget to visit Forex Trading.
FAQs
Below are some frequently asked questions when traders apply the trend-following method.
What should you keep in mind when using the MACD indicator?
This indicator works well in conditions of strong market price fluctuations. If the price tends to move sideways or has small changes, MACD will give investors a noisy signal.
What are the advantages and disadvantages of applying the Super Trend indicator?
When using SuperTrend, traders can focus on the main trend in the market to enter orders. This is the outstanding advantage of SuperTrend. On the downside, the super-trend indicator can give noisy signals when the market shows signs of moving sideways.
Can the super trend indicator be combined with other technical analysis tools?
No technical indicator can give 100% accurate signals. You should combine the SuperTrend indicator with RSI and MACD. This will help you limit risks and determine buying points before the indicator reverses.
