Forex Patterns and Probabilities: Trading Strategies for Trending and Range-Bound Markets

CHAPTER 9

The FX-Ed Trend Technique

Earlier, we compared a trend to a river, and we noted that it is easier to paddle in the direction of the current than it is to fight our way upstream. Each river has its own current, and the strength of that current can, and sometimes does, change. Sometimes a drought will dry the flow to a trickle, bringing the river to a near standstill. At other times, great storms will cause floods and turn the river into an unstoppable force.

How should we approach a trending market situation when the usual “current” becomes a roaring, foaming whitewater rapid? We’ve already looked at techniques for trading with the trend, but there are times when trends can become overwhelmingly strong and require a more aggressive approach. Why do some trends become so strong?

TRENDS ARE SELF-SUSTAINING

One reason this happens is that the longer a market trends, the more obvious that trend becomes. The longer duration makes it easier for other participants to identify the trend and join in. As more and more traders climb aboard in the same direction, the trend accelerates and takes on a life of its own.

The action becomes self-sustaining, as traders who are seeking to take advantage of the trend are in effect forcing the trend to continue. This is one of the reasons why trends tend to continue for longer periods of time than most traders anticipate, and why we should never try to pick the top or bottom of a trend.

DIFFERENCE OF OPINION

Another reason to consider ...