Tuesday, October 2, 2007

Forex Trend Following - The Basics For Making Big Profits

Forex trend following can be very lucrative as for the technical trader forex markets offer some great long term trends and profits for those who trend follow correctly.

Lets look at the basics of forex trend following.

Trend following means longer term

Before we start we are going to look at long term trend following and this means catching trends that last for weeks or months.

Were not interested in day trading here, the odds are against you doing this and short term moves are random so dont try it you will lose your money.

Spotting the trend

For forex trend following start with the weekly chart this will give you the big picture and you can spot trends that last for weeks months or years here.

Next move to the daily chart and try and spot support and resistance that is on both charts. The weekly chart gives you the big picture and the daily gives you entry levels.

Methods for trend following

Perhaps the best place to start is with a breakout method.

Its a fact that most major currency moves start from new highs and the advantage of a breakout method is that you can trade with confirmation of a trend in motion.

We have written about breakout methods in other articles simply look them up, there is not enough room here to explain in detail.

You can use just charts but we like to use a couple of timing indicators to judge the strength of the breakout and for this look no further than the stochastic indicator which is the ultimate timing indicator in our view.

Its available free on internet charting services and is easy to understand and apply.

Be very selective

Dont trade just for the sake of trading.

In forex trend following the big moves only come a few times a year so wait for them.

Its these trades that make the big profits, so be patient.

Money management.

A breakout method makes money management fairly easy.

Breakouts are either false and fail quickly, or you get a strong trending move.

When setting stops in long term trend following, dont trail it to quickly to lock in profits.

Your looking to hold these trades for weeks or even months, so be prepared to suffer the emotions of seeing large dips in open equity and keep the bigger picture in mind.

If you are new to trading long term forex trend following is a good way to start.

If you get it right you can make some really big profits and that after all is the aim of all forex traders.


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