Strategy  – Trend Riding

Who doesn’t like a trend?

Many traders live by the often-repeated “the trend is your friend until the end” rule;
they are comforted with the knowledge that they are with the majority of the
market. Being able to ride on a trend is akin to making full use of the wind direction
to steer your ship towards your destination. For a ship to go against the wind
requires a tremendous amount of effort – one has to fight the stubborn resistance
from the opposing wind. Indeed, for most of the time, it pays more to be on the side
of the current trend than to go against it. In the forex market, trend riders can
capture any trend regardless of whether it is rising or falling in an attempt to
generate trading profits.
Forex tends to have quite trending markets, regardless of which time frame you are
looking at – trends are often formed on hourly, daily or weekly charts. This is due
to the fact that currency price movements are very much influenced by the
underlying macroeconomic factors which in turn shape the market players’ views
of where currency prices should be heading. With trends possibly having a long
lifespan stretching to months, or even years, it is no wonder that many traders and
fund managers exalt the strategy of hitching onto trends, with the glorious aim of
capturing enormous profits from start to finish.
Trend riding is one of my favourite trading approaches, and I often ride the uptrend
or downtrend after the trend has been established, rather than anticipating the move
before it happens. I would say that even though the trend is your friend most of the
times, one has to use a variety of methods to distinguish between a continuation of
the trend and a possible trend reversal. But before you can ride on trends, you first
need to identify what the current trend is, and to determine the time frame of
the trend.