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Over the last 2 years the market has been changing a lot and we saw across the board many currency pairs has started moving away from those nasty big range zone and have been shifted towards more clear trends. Trend trading can be as difficult as range trading if you don't understand the characteristic of this new type of environment, and you need new adequate rules to be able to profit in the market. In this regard my article is going to provide you with some core basics and unique rules that have been helping me to trend trading with a unique strategy.A healty trading market is when we move step by step: Consolidation - Breakout type of move. As a general rule if a market is moving in a consolidation or a range trading box or a base, followed by a breakout and than repeat the process, than the market is doing what it should be doing (see Figure 1). One of the best hedge fund managers PT Jones has explained this process quite simple, and I'm quoting him here:
The basic premise of the system is that market move sharply, when they move. If there is a sudden range expansion in a market that has been trading narrowly, human nature is to try to fade that price move. When you get a range expansion, the market is sending you a very loud, clear signal that the market is getting ready to move in the direction of that expansion. PT Jones
Figure 1. USD/JPY Daily Chart. Trend Trading.
- Identifying a New Trend.
One of the best way to achieve a great Risk:Reward ratio is to be in a trade as close as possible to the starting point of the move. I've done a lot of research and found out that majority of the newly-developed trends have one thing in common: a broken trend-line from a previous trend. The degree and the gravity of the move, after we break a trend-line depends on the time frame, the length and the angle of the trend-line.
The angle of the trend-line can vary enough and it's quite important in projecting the velocity of the move after the trend-line breakout. Based on my observations and research I found that the lower the angle of the trend-line breaking, the more significant the move becomes. In order to be able to visually measure the trend-line angle you can draw imaginary lines above/below down-trend-lines/up-trend-lines (see Figure 2 gray lines).
......................................If you wish to continue reading further please go to Article Contest page here: Trend Trading Strategy: Departure Trendline Setup
Best Regards,
Daytrader21
