Andrew Abraham

andy-0101 My name in Andrew Abraham. I have been investing in commodities and managed futures since 1994. I adhere to the philosophy of trend following. Trend following stresses a disciplined approach to commodity/ futures trading. Successful trend following and commodity futures investing requires patience, discipline and actively managing the risk. What sets me apart from other traders is that I am not only concerned about the return on investment but how much risk I will have to tolerate to achieve my goals.

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If you are interested in contacting for speaking engagements. Please email me at Andrabr9@gmail.com or call 954 903 0638.

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Futures and commodity trading involve substantial risk. The evaluations of futures and commodities may fluctuate and as a result, clients may lose more than their original investment. In no event should the content of this website be construed as an express or an implied promise, guarantee or implication by, that you will profit, or that losses can or will be limited in any manner whatsoever. Past results are no indication of future performance. Information provided on this website is intended solely for informative purposes and is obtained from sources believed to be reliable. Information is in no way guaranteed. No guarantee of any kind is implied or possible, where projections of future conditions are attempted.

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How to follow trends in the forex market

How to follow trends in the forex market

In order to trade the forex markets profitably, traders need to be able to adapt to different market conditions.

In ranging markets, where prices move back and forth, traders can do best by implementing mean reverting strategies, in order to profit when prices move back towards the mean.

In trending markets, prices can move in the same direction for long periods of time and those trading in the same direction will make the most profits.
In this article, we will look at some methods traders use to follow trends in the forex market.

Breakouts

One of the ways traders look for trends is by simply scanning a price chart and looking for price breakouts.

Looking for breakouts is relatively simple in the forex markets and traders will often buy a currency when it makes a new 50 day or 52 week high. Likewise, they will often short a market when it makes a new low.

The theory behind this is based on price momentum. A security that has been trading in a range for a fairly long time, then suddenly breaks out of that range, will often carry on in that direction for a while and form a new trend. If the breakout is accompanied with strong volume it’s an even stronger indicator that a new trend has formed.

Trend lines

Another way traders find trends is by drawing trend lines and other technical patterns on a naked price chart. Upward trend lines must connect a low and at least one other higher low while downward trend lines must connect a high and at least one other lower high.

Trend lines can then be used to illustrate areas of support to an existing trend. In this instance, whenever a currency moves back to the trend line, it’s an opportunity to trade in the direction of the trend. On the other hand, if the market breaks through the trend line it’s a good indication that the market has entered a new trend in the opposite direction.

The drawing of more than one trend line can give further assistance to trend traders, especially when it allows the formation of popular triangle patterns such as ascending triangles, descending triangles or wedge patterns.

As you can see in the example below, when the price breaks out of the falling wedge pattern, it signals a new uptrend has begun.

IMG Source: IG Markets

Moving averages

A moving average shows the average price of a security over a certain time period. In forex, traders most often use the exponential moving average (EMA) which gives extra weight to more recent values and allows traders to react more quickly to market events.

But moving averages are most useful in their ability to find trends. Typically, when a fast moving average crosses over a slower moving average it signals a new uptrend is in place. In this situation a trend follower would buy the market and hope the trend continues.

Conversely, when a faster moving average crosses under a slower moving average it signals a down trend is in place. In this instance, a trader would either sell his long position or enter a short trade and hope to profit from further declines. In this way, a trend trader prefers to hold a trade until he is convinced that the trend is over.

The advantages of using moving averages is that they offer a completely objective view on the market and clearly indicate which direction a market is moving. Unlike trend lines, or other price action patterns, a moving average crossover can only be interpreted for what it is. This has another advantage since it means moving average strategies can be easily written into code and tested for suitability.

IMG Source: IG Markets


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