Best FX Strategies: Trend Trading

Best FX Strategies: Trend Trading
September 27, 2021 Market Traders Institute

Gary Fichardt is a Forex mentor, educator, and market analyst, as well as the host of the weekly Hybrid Trading Room, where he shows traders how multiple strategies can be used together or separately to target profits depending on different market conditions.

Hi, traders. My name is Gary Fichardt and I’m going to describe to you exactly how you can trade all through the year with a trend trading strategy.

If it’s the first time you’ve ever heard that trend trading strategies only last 30% of the time because the markets consolidate 70% of the time, then maybe this is the reason why you haven’t been profitable with a trend trading strategy.

I’ll show you how to be able to use a gearing up/gearing down approach that can potentially help you become more profitable and also let you use trend trading strategies right through the whole year.

Let’s get into the actual details of what this strategy is all about.

Now, it’s very important for you to know that it’s easier to be able to make money trading trends when the market is trending up and down. But the problem is that when the market goes inside consolidation it becomes a very difficult way to make money.

If you look at the market on a chart, it’s easy to draw in a trend line and follow along with a trend trading strategy. All you have to do is trade it from the bottoms to the tops and so forth.

But what happens when the market goes sideways? Like I said, the market goes sideways 70% of the time. So what do we do if it does?

As a trend trader, you can make good money in a trend environment. But the biggest problem that a lot of traders have is what to do when the market goes sideways.

This situation is where traders really struggle to make profits. And so in order for us to make profits in a consolidated trading range, we have to identify the trading environment.

How do we do that? If price is moving sideways, then we need to identify what the tops and bottoms are of that sideways range, and then trade at the bottom and the top of the range but on a lower time frame.

That’s the key right there. You probably knew this strategy but you just didn’t know how to apply it.  So this is what we’re going to do. We’re going to go into a gearing down approach, which means that we’ll be looking at a large time frame.

But if we’re going to be trading on a trend trading strategy that’s built for a larger time frame, then guess what? It’s not going to make money. The strategy is going to have some problems because it’s range-bound and we’re not breaking out of that resistance or support level.

So you need to adapt to market conditions by going into a gear down trading approach. For example, if we’re using 4-hour and 1-hour time frames to identify and implement our trades, then we gear down our strategy to use 1-hour and 50-minute time frames instead.

By going into a gear down trading approach you now can trade the trends with inside consolidation.

So the most important thing to understand from this is that whenever you get into a situation where price is ranging between tops and bottoms, you need to make sure that you identify the trend condition clearly.

Once you have identified the trend condition, then you can go ahead and plan how you’re going to trade it by gearing it down to a lower time frame. Now, you could also gear the trade up. For example, if you’re using 4-hour (identify direction) and 1-hour (implement strategy) time frames, then you can gear up by using daily and 4-hour time frames instead.

But in this article, we’ll talk about gearing down because that’s the one that traders really struggle with to be able to move between different time frames. And so, by going ahead and monitoring a larger time frame then we can identify the bigger market picture.

The market says that the larger time frames control the smaller time frames. But I’ve always said that it’s the smaller time frames that help us identify the turning points of the larger time frames. So who is really in control?

It’s almost like my wife and I, right? I’m the one who says that we do this or we do that. But most of the time I end up doing what she asked me to do except that I feel like I’m the one saying “Let’s do it.” So I think she’s more in control than I am.

And that’s the same way as the markets. The bigger time frames think they are controlling the smaller time frames, but in fact the small time frames are really helping us identify these turning points to drive traders to buy off these levels and push the larger time frames in that direction.

So this is my advice for you:

Don’t be stuck inside a trend trading strategy if you know and understand that price on the larger time frame has moved into a range.

Because if it has moved into a range, you have to make sure that you as a trader identify the condition, identify the environment you’re trading, find the tops and bottoms and get it down to a lower time frame. Then you can use the exact trading strategy used on the larger time frame to trend trade and to focus now on the lower time frame and use it to trade the tops and bottoms.

You’ll find yourself potentially making more money than trying to stick with that trend trading strategy on that larger time frame because that’s when trend traders get totally beat up in the market.  You have a great trading strategy, so find the trend environment on the lower time frames to target the profits that you’re looking for.

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