The Trend is your friend in Forex Spread Betting

Posted By Nick Parry On Sunday, June 22nd, 2008 With 0 Comments

“The trend is your friend, until the bend at the end…”

Wise words, whoever said them. This could be one of the most fundamental and obvious axioms in forex spread betting, and it’s as simple as this – always trade with the trend. Like many aspects of forex spread betting, the most basic principles are the ones that will set you on the path to profitability. And like many new entrants to forex spread betting do, the most basic principles are overlooked or ignored…

Trend following has been the best way to trade for at least 30 years. It’s worked in the past, it works now, and sure as heck will work in the future. And the simple reason is that trends exist, they last for ages in the forex market, and they can be traded up and down.

Like all predictable patterns in forex spread betting, trends start and end with people. To begin with, it’s just a few people and an event. But like a virus it spreads like wild fire. As the trend continues, people notice and jump on by buying (or selling if its a down trend). The trend continues more, so more people jump on for the ride, it grows, becomes stronger, and more people jump on (you see where this is going). Eventually the trend becomes the status quo. The big diagonal line that starts on the bottom left of your chart and ends on the top right is as clear as day. And it’s propelled by billions of dollars and millions of people. It’s a force of nature, it can’t be stopped. So, why not jump on for the ride?

The funny thing about trends is that they are a sort of self-fulfilling prophecy, because people expect them to continue, then buy into them, and cause them to continue through their own actions. The problem with this concept is that it’s abstract, and new traders are often uncomfortable with it. They begin to question how it can continue, and like all good things, must end. What if it ends the moment they jump in?

As a forex spread bettor, it’s not your job to understand the trend, or be comfortable with it’s paradoxical nature. It’s your job to ride it to the sweet (not bitter) end. Don’t try to be right, just try to win and profit. If you want to be right, enter a quiz. If you jump on and it ends (boy you’re unlucky), your risk management will save you (please tell me you manage risk)!

Don’t try to get in at the start and get out at the end.

Don’t get smart. Find a well established trend that you know will carry on and get on board (exact entry points are subject matter for another conversation). The riskiest entries and exits are when you try and predict a trend start and end point. It’s time consuming and stressful, and thats not what forex spread betting should be.

The trend will save you…

If you’re trading in the direction of the major trend, and the trade goes against you, and you don’t have a stop loss (foolish), you stand a better chance that it will come back your way. If you trade counter trend, the opposite is true. Also, trading with the trend increases your chances of a profit as you’re predicting the direction more reliably.

By the way, don’t spread bet without a stop loss, if you do, then you aren’t really spread betting, your gambling.

So, in conclusion…

Always trade in the direction of the trend (I think I’ve made my point clear)!

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