TREND FOLLOWING IT IS!
“The trending market is an ideal market to trade and make money. What trend following is not is prediction or forecasting about how the markets will go. Trend following is based on reacting to price, price and again, price. It is not based on trying to predict price directions.” – Michael Covel
Perhaps the most crucial aspect of the dynamics of the market is their current bias whose relevance is due to the reality that it causes the nexus between trend development and the mindset of both Smart Money and Dumb Money. Obviously, secret purchases in a northbound market is far more upwards than secret purchases in a southbound market and shorting in a southbound market is far more downwards than shorting in northbound market. Because of this, the dynamics of the market proffer crucial explanation of the popular ‘trading mentality,’ i.e. a field of study that attempts to expatiate on market reactions by analyzing the psychology of Smart Money and Dumb money. Owing to their characteristics, market biases proffer some speculative methods.
Biases happen any moment, and as such, they’re what we need to realize desired gains. Vividly, the bias ought to be in place, therefore positions sometimes mayn’t be opened in an extremely bearish trend or smoothed in an extremely bullish trend. Trading against the extremely bullish trend or extremely bearish trend isn’t the most crucial thing for a trader – the pundits of this style would merely have you misguided. The most crucial thing is the general trend. Our belief is that if a bias has started, it should keep on going. It’s much more for that to hold than it to be void especially when positions have been opened. At times, a bias may last more than expected. It can thus be challenging for speculators to keep on riding their profits when the bias still holds and not to exit based on fear.
When an analyst thinks a market is oversold, it isn’t oversold. Being oversold or being overbought is simply something imaginary. This should be construed to mean a similar thing from a financial newscaster who announces that an economic item is rated a ‘buy’ due to a turning level. No matter how logical the explanation is, or the kind of ‘degree’ they hold, whether they’re wearing a $5 tie or $50 tie, in most cases they’ll only achieve 50% accuracy in their analyses. If they’ve more than that, it means that they short weak markets and buy bull markets.
An adept rule-based speculator enjoys more free time than a mechanical trader. Adeptness has to do with the tendency to go with the flow of the markets. Mean reversion speculation is anti-trend (selling in an uptrend and buying in a downtrend, looking for turning points). Many traders feel that an overextended bearish market could be ready to rally and do so protractedly. But the reality is that it might still fall by 600, 800, 1000, 1300 pips before it even goes up. One of the major reasons traders buy renowned and world-famous pairs is that analysts talk about them and investors are often aware of them. If the overextended market continues in the direction that people don’t expect, then investors get whacked. As a result of this, everybody would be looking forward to strangling the prime economic forecaster, as investors holding other instruments are apprehensive. Invariably, you’d see some suave ape who’s shown on the screen or other type of media, often a forecaster whose studies were published in the previous year and adjusted some days prior to the occurrence, safeguarding his studies by reducing the likelihood while announcing that he still prefers the scenario since it remains overextended. Or it might be that the pair displays a temporary halt in its journey and some speculators feel it’s now great to enter contrary to the established trend and realize gains in counter-trend or mean reversion trading. They may not realized, yet they’ve fallen in love with a wrong direction and would go on opening positions against the trend, usually with heavy losses, till they receive a margin call or forfeit their portfolio.
I’ve experimented seriously with over 120 trading ideas, but trend-following has stood the test of the time. Thomas Stridsman (CTA), who’s been developing strategies for
model-based investing since the early 1990s, declares that he’s decided to do only trend-following. The notion behind this idea is plausible, anywhere the strongest trend is, is where returns can easily be realized… For trading purposes, I’ve decided to do only trend-following; and only trend-following I’ll do. This kind of trading approach has proven timeless. We make gains while the trend is still extant.
Could I say I’m better than other traders? I feel I’ve an advantage in believing that any trader can be successful, myself included. That’s what my methodology is all about. As a result of this, I shrug off all misleading moves and noises regularly. I’m not misled by incongruous financial data that have no long-term effect, since I stay focus on my time-tested analysis, which has to do with offering myself with high-risk, low-reward opportunities that would ensure my ultimate victory in the markets.
Those going with the flow of the markets are aware that even if a trend has been happening for a long time, and they think there are still more gains to make, they may still trade in that direction, and as often as not, they’d win. Never forget that the Forex market is the best trending market that exists, and therefore the best trading method to use on it is trend-following. It’s no secret that trading with the trend will normally provide the best results.
I’d prefer to conclude this article with these quotes:
“…A truly great trader will learn to take his money off the table and be satisfied with what he made. It is the greedy trader who overextends himself. It is the novice trader who fights the trend. It is an even greater novice who believes that there is such a thing as “support.” – Joe Ross [Paraphrase]
“The trending market is arguably the type of market that best lends itself to being traded and offers the greatest earnings prospects… The trending market is an ideal market to trade and make money… You should only trade in the direction of the main trend” – Thomas Wacker