Profitable traders are the ones who have enough patience to follow-up on the latest trends, staying with the trends which are going to be the most profitable. A trader who has all these qualities and more, such as knowing and limiting the risks involved.
Finding out and/or keeping up with the current trending currency pairs, both, the uptrend and the downtrend would be other key factors for a trader to consider. What if there are more trending currency pairs out there at one time, except one pair is trending a little more than the other?
- What would a trader do in such case?
- Can a trader pick more than one currency pair?
- Or, do they have to choose one over the other?
It might be more sensible for traders to do their trading with the things that have a much shorter time frame. Of course, those who keep up with the longer time frames on daily, weekly, or monthly basis will be easily able to choose several current trending currency pairs. They will check on them at least once every day in order to know when a trade setup has been established, and that’s the time for them to get in there, at the start of a new trend, just as it is being formed.
It sounds easier than it actually is to make big profits by waiting around for a currency pair to form a trend, especially when working with the shorter time frames. Keep in mind that the trade setups which form in a shorter time frame comprise a sticky and very tricky situation.
There are too many different trade setups that turn out to be false with the shorter time frames. Some traders will use indicators (which are slow and delayed at times). However, when they are efficient, a trader can keep up with 50 to 200 moving averages, or rather MACD.
One can take a chance of making a profit by picking out a few trending currency pairs, then setting back and giving them time to form trends with the short time frames, or simply following several different currency pairs, and with the stronger trade setups that they form with the long time frames, then enter into the market to maximize more profits. This could put an end to following currency pairs that have too strong of a trend, which has occasionally formed. The truth, is that there are many currency pairs which can form trends that are stronger, last longer, and turn out to be very stable compared to other trends. However, these trends will more likely be only trade-able with the long time frames.
What is the trending market exactly?
There are two different types of trends: the up-trend and the down-trend.
An uptrend is a situation where prices go up, forming higher lows.
Most of you are probably wondering why, if the prices go up it’s not just called forming a higher high, but what is happening. If you look at the image given above, you can see how the low’s got higher when the highs went up, but since the lows also went up and when the highs go back down it will leave the low’s higher than they were before, making it an uptrend.
When prices go down, they form a lower high referred to as downtrend:
Is it really that simple to tell the difference in a trending market?
Unfortunately, there is a lot more to it than that. The prices sometimes go hay-wire on both the short time frame and the longer time frame. In fact, there have been traders that tried creating tools and indicators that would make it easier to locate the trends.
Then there are traders that follow the market, they keep track of the prices going up, or going down, and know when they are on the move – and anytime that prices are on the move (referred to as moving average) most traders will be following around 50 moving averages (50SMA being what many of the traders call it).
To use this indicator, one only need to use the following formula:
- There is an uptrend when the prices goes past 50SMA.
- There is a downtrend when prices go under 50SMA.
Then there is another indicator that is referred to as the Bollinger Middle Band or 20SMA. This is also a moving average, yet there is a little bit of difference in its settings. By looking at the following image, you can tell which of the two will help you in determining the best trending-currency-pair, and if either helps, say whether they will help in trading the trends as well.
The famous trending currency pair is the USD/CAD
The image demonstrates that the USD/CAD formed many uptrends, each having higher lows, many of them crossed the 20SMA and also the 50SMA more than once during the time they were forming. This makes them weak and undependable (keep in mind that the red moving average is 20SMA and the blue moving average is 50SMA).
The question is: How can we determine when a trend is growing in time to enter into the market to follow that trend?
For if you use indicator with the moving average you still have to wait until the prices take a sharp turn. For instance, the moving average would have to take the price above the average of 20SMA and the 50SMA and wait for it to go down again to recheck it, and it would have to shoot back up again, which is the high time to enter and follow the trend.
It could end up turning for the worst instead of going back up, or it might go sideways crossing over the moving averages many times. If the uptrend is not strong from the get go, it will make a small downtrend and only end up following the uptrend. The image above shows many cases where the moving average was hit, only the trend wasn’t strong enough to keep moving up.
It is wise to follow the daily chart (the USD and SMS) and keep up with the number of resistant breakouts that formed before the prices started going up (be sure they are strong enough) then you can begin following that trend. If it turns out like in breakouts #3 and #4 on the chart below, and the prices aren’t moving strongly enough after the breakout, you would still be able to get out of it at the breakout by moving your stop-loss. In this case, you still have a chance to at least break even and do so in plenty of time.
Unless you already have the skills for technical analysis or candlestick patterns, it will not be easy to follow a trend form, even if you see a trend forming more in one currency pair than the others, unless you are a master of the trading system.
Don’t miss AUD/USD
Another currency pair famous for forming continuous long and strong trends is the AUD/USD. This one is sometimes stronger than the USD/CAD.
In the image above, you should be able to see a few strong downtrends on the AUD/USD daily chart. However, this is where you will need to enter the market. You’ll need to know just the right place and time to enter in order to follow the strong downtrends.
The strength of GBP/JPY
Yet another strong trending currency pair is the GBP/JPY. Even so, during the time of trending it can still be hard at times when prices that are at higher lows or lower highs that one might find it impossible to enter into the market.
After viewing the image below, you will have a better understanding of what is being said. Take notice to the downtrend at the left and an uptrend to the right. On the left, the downtrend has a lot of moving averages, which will make it nearly impossible to trade. It would also be impossible for a technical analysis. On the right side of the image you notice that a few of the uptrend’s might still be trade-able. However, there are some messy areas near the center of the uptrend that shows sideways movements.
Though trading trends is not just a myth, they are not an easy task to do. USD/JPY is the one that has been trending upward the last couple of years, with several good chances for it to get to trend weekly, on the weekly charts saying to follow the upward movements.
The best way available at this point is to master the trading system, then use it in locating trade setups which are too strong yet on the longer time frame. When trying to hit the bottom or the top in the markets, one can lose a lot at times. It is best that traders understand that not all the movements can be caught, and there will be some of the strong as well as the weak trends overlooked.
Traders never know for sure which trade setups are going to be the strongest in the end. The most that any trader will be able to do is to choose a strong trade setup, a reasonable stop loss, and to try to move it just at the right time.