Determine the Forex Trend and Hop Aboard for a Ride
A Forex trend is the first thing you need to determine when planning a trade. One of the safest strategies you can use is to only trade with the major trend. The classic saying is "The trend is our friend".
Currency prices will often follow trends. Fundamental factors will influence the perceived value of a currency and as more and more buyers "hop on" a trend, the laws of supply and demand will push prices. Other traders will form opinions about the future direction of the price and as the number of individuals with the same opinion grows, a trend is born.
Only the market determines how long it will last.
As more and more investors buy into a trend, it will eventually reach a point where the price of the currency will no longer represent value to some of it's owners, and a sell-off will begin. Often the result is a "correction" where investors jump off the Forex trend to take profits, or simply get out due to their feelings on the currency's value. The price will retrace until it reaches the "good value" point and the buying begins again.
Direction changes of Forex trends are usually caused by new fundamental data releases. You need to be especially careful during the release of key data, to ensure you don't get caught should a major reversal occur.
I like to use the short moving averages from my MACD, along with a longer 50 period simple moving average for my trend indication. This combination of short and long perspectives helps to keep me on the right side of most trends. Be sure to, at least, use the daily chart when checking for trend direction.
Treat the trend as your friend and your trading will benefit from being a part of the flow of momentum.
