Trend training is a concept that has been circulating in the financial world for some time now. At its core, it involves monitoring certain aspects of the market and identifying patterns that could turn out to be advantageous to your investments. For example, let’s say there is a new start-up that experts say it has a huge potential to become a big player in the IT sector. Due to the buzz, investors will rush to put money into it in hopes of turning a profit. Inversely, investors will take their money back if the company is suddenly surrounded by bad publicity.
It is a fascinating and intricate process, both from a psychological and technical point of view. The forex market is a place where trend trading also has traction. If applied correctly, traders can expect to make huge amounts of money.
The Future of Forex Trading
In the last few years, artificial intelligence-based forex trading strategies have been gaining an increasing amount of momentum. Although the software and algorithms are not quite there yet in terms of affordability and efficiency to reach and appeal to a mainstream audience, this scenario is not as far off as one might think. Automated forex trading could become a reality as soon as 2020.
This shift could become come even sooner since international banks are already pouring huge amounts of money in AI trading software. In fact, in January 2018, Blockchain Intelligence Group formed its first Artificial Intelligence Department.
Although algorithms have already been used by traders for some time now for electronic currency transactions, they are not advanced enough to completely take control from human traders. Where they excel at discovering infinite patterns, analyzing huge chunks of data in the blink of the eye and spotting mathematical anomalies, they lack the spontaneity, ingenuity and critical thinking of the human mind.
In other words, we have reached a technological point where algorithms are better at making some clever decisions, but they can’t explain why and how they made them. Despite its incredible progress, until it gains the capability to explain the rationale behind its decision, it is unlikely it will be used on a wider scale, remaining reserved to a small niche of AI buffs for the foreseeable future.
Without further ado, here are a few ways to dominate trends in traditional currency markets with the best available tech.
Master the Exponential Moving Average
Exponential Moving Average (also known as EMA) is a type of moving average that takes into account the latest data. In other words, if you want a formula that reacts efficiently to sudden and fast changes in prices, this is the way to go. This is why it is best suited for trending markets.
The exponential moving average is quite intricate from a mathematical standpoint, so do not use it if you are not entirely familiarized with it or if you are not a fan of technical analysis. In short, the EMA analyzes market trends in short windows of time, usually ranging from 12 to 26 days. It can be used in studying long-term trends (50 to 200 days) as well, but it is most efficient for short-term averages. Using it in conjunction with other indicators can help you determine the validity of certain market trends.
Take Countertrends into Consideration
Even though the forex market is known for its transparency and stability, it is prone to sudden occasional shifts and unpredictable changes in market dynamics. Because you are dealing with state economies, and not bonds and stocks, any major political event or news scandal can turn the market upside down and cause a huge trend shift.
If this happens (and it will) do not get cold feet. Look at it as a great opportunity, business wise. If the trend you are currently involved in is about to go down, find out how you can short it so you can turn a profit out of it.
Another tip is to take every news release or expert opinion with a grain of salt. That does not mean disapproving raw data released by expert sources. It means not rushing to every new hot trend and applying your own filters on the information, running a technical analysis and then deciding if it is a good idea to invest.
Strong Weak Approach
Having an edge is important in any business, especially in the forex trading market. Applying the strong/weak tactic is one way to ensure you have an advantage over other traders.
The strong/weak approach involves putting the weakest currency by buying it against the weakest one, by selling it. To determine which currencies are best paired, the best way is using a moving average tool, applying a formula and consulting price data from the last 200 days. After that, what currencies are worth putting one against another to turn a profit is up to you.
Note Your Investments in a Journal
This might seem like an obvious tip, but many forex traders overlook it. Over a period of time, the journal can offer you a historical perspective of various trending patterns and your activity as a forex trader.
From a trading standpoint, keeping a comprehensive journal can help you track how often you traded and what currency pairs have netted you the most profit. Note everything, from plans that worked, didn’t reap any results and sketches of experimental methods that you plan to apply in the future. This can also be used to improve your technique by determining what didn’t work, why, and what measures can be taken to prevent any futures mistakes from being made.
From a psychological standpoint, it can help you develop good trading habits and eliminating those that are destructive. Here, it is important not to let your ego stand in the way. Try to judge your every action as objectively as possible. Loses will not feel so heavy to your psyche because they’ve been planned for, and you will eventually gain enough confidence to take risky decisions that will not sting so much if they do not go as expected. Moreover, future successes will feel more satisfying because you will know they were the result of your rigorous planning skills.
Financial trends have been around for a while now, and the forex market is not immune to them. Dominating trends, in some cases, might represent the difference between falling into a seemingly endless losing streak and netting huge profits. But mastering the exponential moving average, applying the strong/weak approach and keeping a comprehensive journal will, more often than not, give you an edge over other traders and help you exploit trends to your advantage.