Trend following systems in forex trading work much like the old rule
of physics: A body in motion tends to remain in motion until acted
upon by an outside force. When applied to currency, this is also
thought to be true. If price is going up, it tends to continue going
up, and profits can be made by investing on this trend. The trend can
be upward, or it can be downward, and sometimes there's no obvious
trend, but the principle remains the same. If you can see the trend
then you can invest with the belief that it will continue.
The forex market lends itself very well to technical analysis. Since a
country is such a big and complex entity, it is difficult to put an
intrinsic value on it. Yet there are a large number of elements, both
fundamental and technical, that can be used to establish trends. They
include the GDP, CPI, prime interest rates, ex****t and im****t figures,
and even the unemployment level. All of these can be translated to
charts showing the historical data going back decades. When they are
charted, trends can be seen rather easily. When an investor becomes
skilled in reading these charts and interpreting the trends, he will
be able to use this information to guide his currency trading
strategy.
Trend following is not always that simple. Indeed, it is quite a
complex method of analysis. It can reveal historical turning points or
levels where the trend tends to change direction. This can lead to
investments known as "bucking the trend" trades. Although highly
speculative in nature, they also present some tremendous profit
potential. In essence, you are going to be betting that the trend is
going to change direction while the majority of investors are betting
it is going to continue.
Regardless if you are planning on bucking trends, or merely investing
in the hope they continue in the same direction, understanding and
identifying them is going to be the key element to successful
investing strategy. This is one of the things that makes forex trading
so appealing to the statistical minded and computer orientated
investor of today. The facts are all out there, and the ability to
gather and organize them has never been better. In the past, it was
necessary to seek advice, and usually you had to pay dearly for it.
While there are still plenty of financial advisors willing to give you
their interpretations of trends, you are able today to do that pretty
much for yourself.
Bira
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