Jul 09 2020 1
Almost entering the field of investment, we all hear the term trend trading. But in fact very few investors can adhere to effective forex trading strategies. The forex market does have trends. This is a core role in analytical and investment strategies. Methods of technical analysis also stem from this view. BRKV will guide you to detect price trends with indicators that identify the most effective trend trading strategies.
What is a trend?
To invest in trends, we need to understand what is the nature of trends. By definition, a price trend is created when the price maintains a state of continuous movement in many sessions. Specifically, the price may increase continuously or decrease continuously. If it is determined that each session will have a definite closing price, the uptrend is when the closing price is higher than the previous day. In addition, the peak of the next day will be higher than the peak of the previous day. On the contrary, closing prices and peaks continuously decrease day by day confirming a downtrend.
There are 3 types of trend:
- The uptrend, which means the price increases.
- The downtrend, which means the price decreases.
- The flat line, which means the price stays the same (very rare)
Why do people still lose when they trade according to trends?
In fact, mathematical and econometric models have shown that the market is random. That is, we cannot predict tomorrow's price, increase or decrease. This seems to be in contrast to the view of continuous price increases or decreases. When looking back at history, trends truly exist. And the main reason we cut losses is the correction that appears in the trend.
Trend and momentum
Trend trading strategies
Trends are determined based on price movements. Therefore, indicators to identify trends are formed from a change in the average values of the price. These indicators include: a system of moving average lines (MA), price signals (MACD indicators). Over time, more sophisticated trend identification systems were established: the Alligator system, the linear regression prediction system. In addition, techniques to fine-tune the moving average (MA) to make it more sensitive to the trend movement are also thoroughly applied. The ultimate goal is to recognize if prices are at the time when a trend exists.
The correction always exists in the trend. But what is a healthy adjustment rhythm? When does the correction make a price reversal? Answering this question, the effectiveness of trend trading will increase significantly.
Momentum trading strategies
First of all, it is necessary to determine that the price increase will accompany the price increase. Therefore, the momentum factor, or price increase force, will be determined first. Indicators measure the growth rate of the trend through which to form. Specifically, the only indicator, the RSI, measures momentum. It works to predict when a trend will reverse. Advanced of this indicator, RSX, continues to be a breakthrough when removing noise from RSI indicators. Thereby, investors do not "fall in" too soon. In addition, many alarms that change price rates, including R% William, or Stochastic Momentum, etc., are also effective. These indicators are now also upgraded from the original versions.
The belief that prices will fluctuate in a trend is a guideline to strengthen investors to follow this strategy. But beliefs need to be reinforced by concrete experiments. This is why so many technical trends determine the price trend. Development from technology makes it possible to graph formulas for determining trends into graphs through indicators. Thanks to these indicators, we can break down the trend into smaller components. By monitoring and measuring all these factors, we can determine when to believe in the trend and when that belief is in phase.
In a nutshell, the last secret to trading on effective trends is to understand the two elements presented. To identify trends and changes in price speed, a series of effective trend indicators are developed. After all, what makes trend indicators work best? That is the belief in the trend. Once there is confidence, compliance with trading discipline and fund management will enhance the investment performance in the forex market.