Forex Investment and Currency Trading

All Forex trades somehow capitalize on trends as the price moves from where you entered to where you exit; some trends being more obvious than others. The trader’s cliché is true, in that the “trend is your friend” while you are moving towards greater profits, “until it ends” at which point you need to quickly get out. You could conceivably trade (mostly by luck) without being aware of the trends, but by following the trends you’ll consistently be able to capture substantial gains. Being able to trade through the duration of a trend
will allow you to maximize the possible gains. Thus the trick is to be able to get in early on a trend and to stay as long as possible on it. Historically, trend-followers have made more money off currencies than any other market.

No matter how you slice ‘n’ dice it trend following systems are the strategies that ultimately work. Whether you are observing and trading along huge trends on the large charts (i.e. daily, weekly, or monthly), or go to midsize trends (i.e. on hourly charts), or go to the opposite end of the spectrum and surf/scalp micro/petit trends, then you are engaging into trend following strategies regardless of the scale. Essentially all trading relies on trends to some extent – Fibonacci swings consists of smaller trends (minimum 3 main trends consisting of countless smaller scale trends within those) within a larger trend, range trading is simply trading along smaller trends within the broader sideways trend, pattern breakouts are simply the start of a new trend, moving averages indicate a trend (in fact all indicators basically do), and you can go on and on pointing out how virtually any technical trading method is simply an advanced adaptation of trend following.

There is a common expression known by traders; “the trend is your friend…until it bends”. If all you were to do was to get good at identifying trends, in any time scale, and know how to trade them then you will inevitably make substantial profits.

When you understand the basic fundamental principles of how the Forex market prices moves then all else are just applications of those basic principles”. Prices of course move based on market sentiment resulting from news and world influences, but as technical analysts we are generally not concerned with that perspective (fundamental analysis). The basic fundamental principle of how the markets move, from a technical perspective, is that the market moves in an oscillating fashion (bouncing in waves) while gravitating in a certain direction (up, down, or sideways). ALL trading methodologies are simply applications aimed to capitalize on the understanding of that above stated fundamental principle.

Simply put, trend lines show the confined range of oscillation as the markets gravitate towards a particular direction. When the trend line breaks it is a chance to reevaluate the direction of the oscillations.

This oscillation is apparent in ALL scales of chart perspectives. It is important to keep the perspective that within larger trends there are smaller trend, within those smaller trends are even smaller ones, and within those are even smaller ones,etc… There are trends within trends within trends. Essentially the oscillations within a trend are in and of themselves smaller trends that are comprised of oscillations that are even tinier trends. Really understanding this isn’t just some nice theory but rather is very practical when you know how to apply this knowledge.

As with any spectrum, there are two extremes to the technical analysis of the Forex markets. On one end you have tick charts, or the more practical one minute charts, as used by “scalpers”. On the other practical extreme you have Monthly charts (each candle represents one month of trading activity), as might be used by “position traders”. Despite the apparent difference these two extremes are still showing you the same thing – historical market price data presented visually, just zoomed in or out in perspective (think of fractals again).

Realize that even the Monthly candles developed second by second just as the tiny one-minute and even the tick candles did. The oscillations seem most chaotic when viewed on the tick candle charts; mindlessly bouncing up & down, but even these tiniest of oscillations, though it may not be apparent while watching them, are still gravitating towards the oscillations of progressively larger oscillation/trends all the way up to the grand scheme of things as seen on the Monthly charts. Thus even the tiniest tick movement is contributing to the fulfillment of the big picture.