One of the ways in which traders find a way to make some “easy” money is to trade with a trend line. Once a trend is established it can be traded with in order to establish a time to enter into an exit a trade. While trends are no more a guarantee than any other indicator they are a worth while way to increase your odds. Trends are established in an either up, down or side fashion, and any one of these is good for profiting. While the most obvious course of action after identifying a trend is to follow the “overall” direction (buy if it is an uptrend for instance) there is the potential to make a lot more money. By trading within the trend you can profit by repeatedly buying and selling as the price moves accordingly.

Once a trend is broken all bets are off and a trader should wait until either other technical indicators signal a price movement they are looking for, or they should wait until a new trend is established. Typically once a trend is broken the price of the currency will continue to move in that direction for a good period of time. This is not always the case however, and anyone who enters into a trade simply because a trend line is broken may find them self in serious trouble. Using Fibonacci retracement levels in conjunction with trend lines is a very good idea to avoid the perception of a “breakout” where none exists. Such perceptions can lead to substantial losses, and while it might seem like common sense for many, forgetting an indicator comes naturally on the online forex exchange.

There must be a measure of caution exercised when utilizing this trading technique just like using any other.

When a trend is confirmed then a trade must be committed to within the confines of the trend, if a trade does not go your way wait until you are positive it is going the wrong direction. Once a trend has been completely broken it is time to leave the trade at a loss, knowing when this is necessary is a matter of experience and discipline. Rarely will a trend be broken and then immediately be re-established, and for this reason it is important to let the currency price run its course. Once either a new trend is established, or technical indicators point to favorable conditions it is time to enter the trade.

 

The author is a Forex trader and financial analyst residing in Denver, Colorado.  To stay up to date on all the latest developments in the financial world and beyond be sure to stay up to date with the latest forex quotes.