The really big money is made from people who can forex trend follow successfully and the reason its so lucrative is the big trends last for weeks, months or years. Let's see how to trend follow forex correctly.
The first point to keep in mind is that you need to be patient to wait for the right opportunities and then hold them for a long time.
In your forex trading strategy you don't get rewarded for trading often, or the effort you put in, you get rewarded for being right and that's it.
The simplest way to make big money forex trend following is to trade breakouts above resistance to a new high or below support to a new low. Most big moves start from breakouts and if there valid the odds are heavily on your side.
What is a valid breakout?
Simply a support and resistance level that has been tested on several occasions - 2 is the minimum but the more the better and the more different time frames and wider apart they are the better. You are looking for levels the market participants consider important.
When they break normally stops are bought back and new buying kicks in creating a surge in price.
When you have a level you think is valid and it breaks don't just jump in check also that price momentum supports your view and the velocity of price is in your favor.
For this use momentum indicators - there are a number of good ones and we love the stochastic, RSI and ADX indicators. They are covered in more detail in our other articles so simply look them up.
If momentum is on your side, execute your trading signal. Your stop loss is then obvious:
Place it below broken resistance or above broken support.
Well this all sounds straightforward doesn't it? Well now the hard bit - staying with the trend.
This sounds easy but is incredibly hard for most traders as the bigger a profit becomes the more they want to bank it before it gets away. As the profit gets bigger the temptation to get the stop really close or snatch it becomes too much and the trader banks a marginal profit.
What happens next? The trade goes in the direction he thought it would and piles up $10, 20, or 30,000 dollars and he's not in - this has happened to me, it's a horrible feeling!
What you have to do is:
Hold your stop back outside of normal volatility, so you don't get taken out to soon. For this look up standard deviation of price and make it an essential part of your forex education.
If you want to stay with the big trends, you need to keep you stop back and a good way of doing this is to use a key simple moving average ( we use 40 days) this will keep you with the big trends and your stop outside of random volatility.
Sure you are going to give a big chunk back at the end of the trend, but as you don't know when the trend will turn that's not a problem. Catch just 60% of all the major trends and you would be very rich.
So accept dips eating into your open equity on your currency trading system in the short term, be disciplined and keep your eye on the bigger prize.
Does the above sound simple?
It is - but don't think the above won't make you money it will.
I know several traders who focus on breakouts on longer term trends and make 100% + annualized gains trading around 10 times a year.
Trend following forex involves being patient, trading the best opportunities and having the discipline to stick with your trading system, to take short term drawdown to bank big profits.
Become a forex trend follower and the potential is huge in terms of profits.
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