The Myth of Market Trend
This report was written to illuminate the top misunderstood Forex areas and help Forex traders
succeed and stay profitable. The information is presented in a readable way for beginners as well as advanced traders that want to tune up their trading approach and increase their success rate. You will learn by stressing the common mistakes and often revealing obvious but underestimated trading techniques.
Most traders start by asking the correct question: “What's the current market trend?”, but then most of them fail to determine the trend correctly and almost all traders miss the next important question: “How reliable is the current trend?”
If you don't take the trend into account, you will often be tricked into placing low winning-probability trades. Trend is your friend. By following the trend it can only be better. But you have to distinguish between the real trend and very tempting price action that wants to play with your emotions.
You will also understand the basic principles behind chart patterns, how to draw strong trend lines, how to recognize the patterns and how to trade them. We always keep trading simple and therefore we focus only on the most reliable chart patterns. With the following knowledge, you will be able to spot the patterns leading to explosive price movements and then trade profitably with it.
The myth of market trend
Trend following has been the best style of trading for the past 30 years. There were times when traders made fortunes just by following the trend or following a simple system based on two moving averages crossover. The “buy and hold” strategy that was so popular by traders about a decade ago is dead today.
Look at the EUR/USD chart from January 2001 until July 2008. The uptrend was pretty strong most of the time. If you pushed the “Buy” button, you would win most of the time even with a poor trading system. The consistent rise of the euro over the dollar was giving you a clear sense of the overall trend.
Since July 2008, it looks like everything has changed. The trend direction is unclear, nobody knows what is going to happen next and people are seriously preparing for the coming collapse of the single European currency. By the way, for us (Forex traders) it would be nothing but another opportunity to make a profit, so keep
Does it all mean that markets are not trending today? Of course they are trending! Trends exist and they can be traded up and down for profit. There will always be short-term trends in any market, the only question is when! So, the big question is...”how do we find the best trending market and not miss the opportunity of taking trading signals in the direction of a strong trend?” You will find a definite answer soon.
The belief that trend following is an outdated trading technique is only partially true. It is true that there is hardly any market with clear overall trend direction. You could follow the temporary trend only if you are able to determine the trend correctly. This is the point where so many traders fail. A pair moving up on a 30-minute time frame can act exactly contrary on an hourly time-frame. Even if you find a rare coincidence – a currency pair moving in the same direction on all time frames – you still need to know “how well” the market is trending to avoid very short-term trends. The solution is smart and simple.
How to increase the profitability of any system
Before you discover the most simple and effective method to determine the trend, let's see what it’s good for. All the trend following systems are based on one common approach:
“Buy the dips in an uptrend and sell the rallies in a downtrend.”
Let's reveal one simple trading system that actually made a fortune for one famous trader and his investors. The system “Donchian 5 & 20” is named after him. Here is the set-up.
In the chart above, you see two indicators – the blue line and the red line. The blue line is the indicator SMA 5 (stands for simple moving average with period 5) and the red line is SMA 20 (simple moving average with period 20). Donchian's idea was very simple:
- Buy when the blue line crosses the red line upwards
- Sell when the blue line crosses the red line downwards
Even a 5-year old child could do this! Actually, there is nothing special about this system. All trend following systems are like this. Some systems are more advanced, with more sophisticated indicators, but the common approach is to buy the dips and sell the rallies.
If everyone could do this, then what's the money making secret?
The answer is that Donchian used this system in strong bull markets. Yes, trending markets! This important note is the key to consistent profits as illustrated in the chart below.
The first trade was profitable because it was made in the direction of the strong trend. The next trades lead to losses as the market was turning up and down without a clear direction. Profits made in the first trade would be taken back in a series of losses.
How Donchian dealt with it was smart. He ignored all trading signals when the red line was not going up on at least a 45 degree angle. He wouldn't take any losing trades after the first trade because the red line is not trending at all. It is in a so called choppy zone. So why was Donchian able to make a fortune from such a simple system while others could not? Because others would throw this system away as not profitable! The only “trick” was to follow a good trend and not taking any other trades.
Readmore here 👉 https://17de391ohdzzphfxyrvqy6hsdz.hop.clickbank.net/