Trading “with the trend” is the safest, most conservative way to buy or sell commodities, stocks or currencies. If price is clearly going in an upwards direction then it is said to be in an upwards trend and vice versa when going down. If the majority of traders in the world are buying a particular currency why would you, as an individual trader, with no ability to affect the market, want to go against the herd and sell?
Using Forex Trend Lines
One way that successful traders go about trend trading (with the trend) is to enter when there is a pullback to a support level (trend line) within the trend. At this point a trader could buy in the direction of the current trend. This technique is known as “buying on dips”. A stop-loss for the trade would be placed below the lowest point that the price had traded in each pullback.
uptrend-downtrend-chart The opposite approach could be used for a market in a downtrend. The downtrend is identified when the pair has been building lower highs and lower lows.
By trend trading in the direction of the dominant Forex trends, you will have market momentum behind them. This helps to reduce risk of any open trading positions as you have the ‘backing’ of the market.
Where to Place Trend Lines
In previous article I showed you the easier method of spotting horizontal support and resistance. Many new traders find diagonal, trending lines to be a more difficult subject BUT if you zoom out on your charts as in the diagram above it is a fairly easy concept to grasp. Once again you are trying to place lines where most other traders will do so.