Trend following has been the best style of trading for the past 30 years. There were times when traders made fortunes just by following the trend or following a simple system based on two moving averages crossover. The “buy and hold” strategy that was so popular by traders about a decade ago is dead today.
Look at the EUR/USD chart from January 2001 until July 2008. The uptrend was pretty strong most of the time. If you pushed the “Buy” button, you would win most of the time even with a poor trading system. The consistent rise of the euro over the dollar was giving you a clear sense of the overall trend.
Since July 2008, it looks like everything has changed. The trend direction is unclear, nobody knows what is going to happen next and people are seriously preparing for the coming collapse of the single European currency. By the way, for us (Forex traders) it would be nothing but another opportunity to make a profit, so keep smiling.
Does it all mean that markets are not trending today? Of course they are trending! Trends exist and they can be traded up and down for profit. There will always be short-term trends in any market, the only question is when! So, the big question is…”how do we find the best trending market and not miss the opportunity of taking trading signals in the direction of a strong trend?” You will find a definite answer soon.
The belief that trend following is an outdated trading technique is only partially true. It is true that there is hardly any market with clear overall trend direction.You could follow the temporary trend only if you are able to determine the trend correctly. This is the point where so many traders fail. A pair moving up on a 30-minute time frame can act exactly contrary on an hourly time-frame.Even if you find a rare coincidence – a currency pair moving in the same direction on all time frames – you still need to know “how well” the market is trending to avoid very short-term trends. The solution is smart and simple.