A lot of people get confused by the term trend trading because you can find trends in any timeframes. However, Forex trend trading strategies are a completely separate breed of strategies and it is mostly used by large financial institutions, professional traders, and retail traders with ample patience and capital in their hands.
Trend trading has its roots in the extrapolation theory, a concept originated from the realm of behavioral finance, which advocates that market participants form bias based on the existing directional movement of price. Since people put more weight to recent price action, it creates an overall bias in the market and thatâ€™s what creates trends in the market. Trend trading strategies try to exploit such long-term bias.
Traders utilizing Forex trend trading strategies trade very selectively and usually hold on to their trades for days if not weeks at a time, which allows them to magnify their profit by accumulating additional positions in the direction of the original trend throughout the holding period.
we can see that using a trend following a strategy like Bill William’s Chaos Theory, you can gradually scale in and increase your positions to reap the maximum profit from a larger trend.
While trend trading can provide traders large sums of profits from a single, it is difficult to find good trends on larger time-frames as most markets only trend less than 30 percent of the time. Furthermore, beginner traders usually do not have ample capital to set large stop losses required to apply Forex trend trading strategies. So, unless you have the experience, patience, and capital to trade only a few times a month, it is better to stick to day trading strategies or swing trading strategies.