In this video, you will learn about a forex trading strategy of how to trade using trends. For example, look at the GBP/USD daily chart. As you can see, the pair is in a downtrend. The momentum causes the price to continue in the same direction of the trend due to buying or selling pressure.
Strong trends persist over a long period of time due to the fundamentals. In this case, you should wait for trading opportunities to enter in the direction of the trend. You can look for pullbacks in an uptrend or wait for rallies to slowdown, and then enter a short position in the direction of a downtrend. Hence, it is not rewarding if you try to trade in the opposite direction of the trend. You get a good risk to reward ratio for your trades if you trade in the direction of the trend.
You can use the 200-period EMA as an indicator for observing momentum on the chart. You can use this indicator for determining strong trends. Normally, above this EMA is considered bullish, and below is considered bearish. For example, you can take trade long positions when the price is above this EMA. Also, you can use a combination of two moving averages to generate buy and sell signals in the direction of overall trend.
You can use the 20-period and the 50-period EMA for crossovers. It is important that you trade crossovers only in the direction of the trend. Keep in mind that at some point, the trend loses force, and tends to reverse. Hence, you must use
You can also use other set of indicators like the MACD and the RSI to observe momentum as well as overbought and oversold conditions. You can use the MACD to generate buy and sell signals. However, volatility is the key in the forex market. A trend trading strategy may not work at all in a flat or range bound situation.
You can use an indicator like Bollinger Bands to gauge volatility in the market. Also, you can use the ADX indicator to measure the strength of an existing trend.