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How To Trade Trends In Forex – A Complete Guide

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how to trade trendsWe’ve all heard the saying “The trend is your friend”, and while it sounds nice it doesn’t really teach us anything about trading a trending market or how to identify one. In today’s lesson, I am going to give you guys some solid information on trend trading that you can begin using immediately. Today’s lesson is all about trading trending markets with price action, and we are going to talk about how to tell when a market is trending and how to take advantage of these trends.

I hope you guys pay close attention to today’s article and refer back to it when you have any questions about how to trade or identify a trending market. In fact, if you email me asking about trends…I will probably refer you to this article!

Let’s get started…

The first step: Learn to identify a trend with nothing but raw price action

As you probably already know, there are tons of different indicators that you can put on your charts to ‘help’ you identify a trending market and trade with it. Many traders spend countless hours and dollars on trend-following trading systems or on indicators that just end up confusing them and making the process of trend discovery a lot more difficult than it needs to be.

I have always been a strong proponent of visual observation of the raw price action of a market, as you probably know. I also believe that simply observing a market’s raw price action, from left to right, is the easiest and most effective way to identify a trend and to spot high-probability entries within it.

Let me make a quick note before we proceed: A trend is not actually a strategy by itself; it’s just an added point of confluence that increases the probability of a trade. However, just randomly jumping in with a trending market is not an edge or a strategy.

As a market moves higher or lower, its previous turning points, or swing points as I like to call them, become reference points that we can use to help us determine the trend of a market. The most basic way to identify a trend is to check and see if a market is making a pattern of higher highs and higher lows for an uptrend, or lower highs and lower lows for a downtrend. This is just plain old visual observation of a market’s naturally occurring price action…no mumbo-jumbo trading systems or magic-bullets here. I’d like you guys to take a look at this simple diagram that I drew below; it shows us the basic idea of looking for higher highs (HH) and higher lows (HL) for uptrends and lower highs (LH) and lower lows (LL) for downtrends:

Note: each colored circle is highlighting what we would consider a ‘swing point’ in the market:

Thus, general observation of a market’s swing points is the first point of call in determining if a market is trending. If you do not see a pattern of HH HL or LH LL, but instead you see sideways price movement with no obvious general up or down direction to it, then you are probably looking at a range-bound market or one that is simply chopping back and forth.

Tip: You shouldn’t have to think too hard about whether a market is trending or not. Most traders make trend discovery WAY too difficult. If you take a common sense and patient approach, it’s usually fairly obvious if a market is trending or not just by looking at the raw price action of its chart, from left to right. Make sure you mark the swing points on your chart, as it will draw your attention to them and help you see if there’s a pattern of HH and HL or LH and LL, as discussed above.

Characteristics of trending markets

Trending markets tend to make strong moves in the direction of the trend followed by periods of consolidation or a counter-trend retrace before the next leg in the direction of the trend. You will notice this pattern happens in almost any trend you can find. Typically, what happens to many traders is that they will make some money during the periods of strong directional trend movement, but then they continue to trade as the market takes a breather from the trend and consolidates. It’s these periods when traders give up all of the gains they just made when the market was moving aggressively.

You need to learn to identify the different parts of a trend, this will help you avoid over-trading during the choppy / consolidation periods and will give you a better chance at profiting when the trend makes a strong move.

Here is an example of what I’m talking about:

In the diagram above, we can see that a trending market tends to move in spurts, moving in the direction of the trend and then stalling to take a breath before another leg in the direction of the trend. Now, all trends are obviously not exactly the same, but we do typically see the general pattern described above; a forceful move in the direction of the trend followed by a period of consolidation or a retracement in the opposite direction.

Now, these retraces are when we have the highest potential for a high probability entry within the trend. Often, a market will retrace to approximately the level of its previous swing point before the trend resumes. In an uptrend these swing points are support and in downtrends they are resistance. Look at the very first diagram in this article for a quick refresher on what I’m talking about. Also, let’s look at the chart we just looked at but this time with the support levels marked. These support levels resulted after the market began to retrace lower within the structure of the broader uptrend.

Note the ‘stepping’ pattern left behind by the swing points in this uptrend. As the market retraces back down to these ‘steps’ or support levels, we would focus our attention and watch for price action signals forming near these levels to rejoin the uptrend:

Note: These same principles apply in a down trending market but we would be looking for price action setups from resistance rather than support.

As we discussed previously, a trending market will tend to surge in one direction and then slow down and either consolidate in a sideways manner or retrace lower or higher, depending on what direction the dominant trend is. It is during these contraction or retrace moves that we can focus extra hard through our ‘sniper-scope’ and begin searching for high-probability price action trading strategies forming from previous swing points within the overall trend.

Trading from value in trends

My primary mission as a price action trader is to watch for obvious price action setups that form after a market retraces back to a confluent level in the market. This can be a swing point like we discussed above, a moving average level, or some other support or resistance level. Whatever the case, I am looking to trade from ‘value’ in a trending market. By value, I mean from an optimum point in the market that has proved significant before.

For example, in an uptrend I would consider ‘value’ to be support, since that is where the price of the market is likely to be seen as a good ‘value’ for the bulls, and thus they will tend to buy from that level and push the price higher. Whereas, in a downtrend, ‘value’ is seen at resistance, since the price has rotated higher within the broader downtrend; so it’s a good ‘value’ to sell from resistance in a downtrend. These rotations back to value points can also be called ‘trading from the mean’ or the ‘average’ price, this is why moving averages tend to act as dynamic support or resistance levels.

One tool we can use to find ‘value’ in a market is a moving average. I don’t use them all the time, but when I do I like to use the 8 and 21 day exponential moving averages. I use them as a general guide and a helper to find confluent points in a market. For example, often the 21 day EMA will align with a swing point in a trending market, this would be considered a confluent level since you have multiple factors lining up together. Then, if we see a price action signal there, we know we are seeing a setup form in a very high-probability area on the chart. See here:

Note: these moving averages should only be used as a ‘general guide’ and never as an actual signal (as in the old ‘moving average crossover signal’). We only use them as a helper to see dynamic support and resistance levels (to add confluence) and for trend direction. But just to be clear, our main focus is on visual observation of a market’s price action and levels, that is to say without any EMAs.

Don’t fall into the ‘breakout’ trap – Many amateur traders get stuck in a cycle of trying to trade breakouts all the time…this is not really an effective long-term strategy because the ‘big boys’ all know that amateurs are constantly trying to buy and sell breakouts. Instead, we want to enter closer to key market levels, swing points, EMA levels (confluent levels) in the market…always with confirmation from a price action signal. As a ‘regressive’ price action trader, we are looking to buy or sell from value within the trend…waiting for the inevitable pullback and then pouncing on an obvious price action signal if one forms.

Forex trends vs. other markets

One aspect of trend trading that I want to touch on briefly is that trends in Forex tend to differ from those in other markets, especially equities.

In Forex, bearish and bullish trends are typically equally as violent and potent…whereas in equity markets we tend to see slower moving price action in a bull market, along with lower volatility. Down-trending markets tend to be fast and volatile in equity markets. Forex trends tend to be the same in their volatility and price action whether the trend is up or down. The main reason is because it’s one currency against another in any given currency pair and this results in more balanced price movement.

Thus, in Forex, your trading strategy and plan will generally be the same for both up and down markets. Here’s an example of the EURAUD daily chart recently that shows just how consistent both down trends and up trends can be in this market…note how the volatility and speed of these trends were about the same:

In the equity markets, traders typically need to adjust their strategies or systems as a market moves from bull to bear or vice versa. But in Forex, whether you’re trading long or short, bull or bear, the volatility of a currency pair tends to say about the same. That’s not to say that volatility never changes in Forex, it just means that the particular direction of a Forex pair doesn’t have a very big impact on that pair’s volatility or price action, as it does in the equity markets for example.

Final notes on trading with trends:

Take advantage of trends when they happen – There is never anything concrete with trends…meaning you never know how long they will last for, so try to take advantage of them when they do occur. Markets typically only trend about 25 to 35% of the time, and the rest of the time they are range-bound or chopping in a sideways fashion. The trick is to learn how to identify a trending market so that you can get the most out of it and get on board as early as possible.

Counter-trend trading – Overall, trend trading should make up about 70% of the trades you take, and the other 30% might consist of counter-trend trades or trades in range-bound markets. It’s best to learn how to trade with near-term trend before you try trading counter-trend, because trading with the trend is naturally higher-probability than trading against it.

In conclusion, trend trading is perhaps the ‘easiest’ way to make money in the forex markets. Unfortunately, markets don’t trend all the time, and it’s the time in between trends that traders do the most damage to themselves. This damage is a result of not having the discipline to wait for high-probability setups to appear, and not being able to properly read a market’s price action to determine whether or not it’s trending.

I trust that today’s lesson has helped you get an idea of how to determine whether a market is trending or not and how to trade a trending market. Remember, there’s no ‘Holy-Grail’ for trend trading, but if you’re in doubt, the best thing to do is to just relax and take some time to visually observe the last few weeks of price data in a market…without indicators. This no-nonsense approach is hard to beat and will work if you know what you’re looking for.

Finally, I leave you with this little formula:

The Best Trades = Trend + Confluent level + Price action signal

I’ve touched on some topics that traders can use for short-term trend analysis today, and I expand on these topics in the members’ article section of my price action traders’ community. Trend following is a large part of my Price Action Forex Trading Course and of my general trading strategy. I’d really love to hear your feedback today, so please remember to leave your comments below & click the ‘like button’.

Good trading, Nial Fuller

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About Nial Fuller

is a Professional Trader & Author who is considered ‘The Authority’ on Price Action Trading. He has a monthly readership of 250,000+ traders and has taught 15,000+ students since 2008. Checkout Nial’s Forex Course here.

91 Comments - Click Here to Leave a Comment

  1. Michael says:

    Nial
    like to thank you for the nice article on trading trends.
    very knowledgeable info. thank you

  2. rajesh vishwakarma says:

    A good article on trend trading…you told about price values as deterministic factor to make an entry but would like to know when to exit before the retracement and how to find it…Thank you very much

  3. James says:

    Thanks Nial, for the great article as evidenced by all these comments. Now that we know how to identify a trend lets put our knowledge into practice. You don’t want to put such resource/knowledge to waste. The challenge is that trends not as common as we would want them to occur! Lets also add patience to the mix and sharpen the Sniper mentality.

  4. Christen says:

    One of the best, common-sense articles on Forex I’ve read. After years of listening to complicated explanations, use of endless mathematical formulae, indicators, “systems,” and “expert advisor” robots, I finally had to set them aside and use my own eyes. What I like to do is look at the Forex market in real time and see the raw trend. That’s NOT theory or a mathematical model. It’s the real thing. I do better trading with that, than anything I learned from “experts.” Anyway, Nial is on the right track.

  5. Mohammad Aminul Islam says:

    Wonderful explanation on FX Trends. Many thanks.

  6. Raman says:

    Dear Nial, your way of viewing market has started changing my perception too.

  7. Samuel David Jackson says:

    thank you nial……i have learnt a lot from this price action trading strategy,and your encouraging article has given me hope of becoming a better trader….And i would like to be professional and inspirational as you are or even better if i may say..GOOD JOB

  8. razu says:

    Nail Sir

    Thank you to sharing this article.I follow your site every day that help me for trading in the market.Now i am a perfect trader of price action.

  9. kamau says:

    excellent article. direct and easy to understand. thank you

  10. ajmal says:

    Thank you
    for ur Great Lesson thanks lot

  11. Farkad says:

    Dear Nail,
    Thanks, great wisdom and practical points for trading.

  12. Elena says:

    Thank you, Niall! All of your articles carefully study (week) and put into practice. I believe in a positive result. Your article is fundamentally changed my attitude to the trade. My heart was calm and quiet confidence in the results.
    Elena, Russia, the experience of 3 years))
    21/11/2013

  13. Anantha Theerthan says:

    Thank you sir,
    much appreciate this for reinforcing my trading habits.

  14. Joseph says:

    Wonderful article is understatement.

  15. Jakson says:

    Your words about trend are very important for me. Thanks so much.
    I am brazilian, so, my english not is very expansive.
    Sorry.

  16. Awofeso says:

    Thanks again to the master of “price action trading” you are my forex trading mentor.

    Love you Nial.

  17. john says:

    Thanks Nail for sharing your knowledge. God bless you..

  18. Raju haq says:

    Million of thanks. Its a great article i ever seen. once again thanks nail.

  19. Jotex says:

    The Best Trades = Trend + Confluent level + Price action signal.I love that part.Thanks Nial for this Great Article.

  20. fred says:

    is it important to check the economic news when you trade in strong trend??

  21. abiodun says:

    Fuller, you are the one that God sent to deliver me from 6 years of ups and DOWNS in this business. May the Lord God of my fathers continue to bless you in Jesus Name

  22. David says:

    Greatly valued lesson Nial. After all this time you open the door to useful strategies.

  23. Miken says:

    Hi Nial
    Nice work you have teach me a lot

  24. José says:

    Nice article Nial. I really liked the formula at the end, which provides a beautiful summary.

  25. onin says:

    excellent work sir..

  26. DUDLEY SACKALOO says:

    great wisdom in this article, although I am no beginner I still learnt a lot.

    Dudley W.S.
    — Jamaica -

  27. L A says:

    Yes…..trade the pullback….of a trend. Appreciated the part @ breakout trading trap.

  28. smoke says:

    the article was quit splendid thanks mr fuller,s

  29. ali says:

    thanks nail bhai

  30. Mike says:

    What an amazing article
    It’s just what I needed to improve my edge!
    Thanks Nial, you are the best…

  31. Pavel says:

    Thanks Nial,
    I think that your formula + money managment is ‘Holy-Grail’ for trend trading

  32. Henry says:

    Hello Nial, you made it so simple for me to understand how to trade the trend. Thanks

  33. Khairul Azan says:

    Thanks Nial,

    As I practice in my trading, I will not trade until I confident with the price direction (trend).

    That’s just how how I made money consistently in forex market.

    And this article I considered as the best one from you.

    Thanks again.

  34. Rundhir says:

    Great article Nial. Huge difference in my trading results.All thanks to you. God Bless.

  35. Phil B says:

    Thanks Nial. Well written & easy to understand

  36. Alazar says:

    wonderfull article. thank you Nail.

  37. hamid says:

    thanks nial.. great article

  38. James says:

    “It is literally true that millions come easier to a trader after he knows how to trade, than hundreds did in the days of his ignorance.” (Jesse Livermore)

    Thanks Nial

  39. Emmanuel says:

    Awesome Nial…

  40. Barry says:

    Thanks Nial,
    I always forget the basics, it’s so nice to be constantly reminded of them,
    All the best, mate

  41. Larry H. says:

    Nial,
    Thanks again. Larry

  42. Wajdi says:

    I am currently trading only pin bars in trending markets and this article has given me insight into my way of trading. Thank You :)

  43. Sachith says:

    Very usefull thanks

  44. Gordy Caverly - US says:

    Nial: You continue to build a great resource library that is growing in knowledge and if used appropriately will turn to gold!

    Thank You,

    Gordy

  45. Michael says:

    Thank you Nial

  46. Stany says:

    Hi,
    I’ve got a feeling like every new article from Nial is more in deep and he reveals us more things he learned in his career that I would expect will keep for himself.

    Thanks very much Nial, I think without your web I would be stucked on nearly the same place where I was before I found it (about half year ago).

    Have a nice day there,
    Stany

  47. DannyV says:

    Thanks Nial, great article. I love this way of trading with the inside bar strategy. But patience is the key here. But once you master the patience then you’re good to go. Thanks loved this article heaps.

  48. Nitka says:

    NOW I know why all my profits are gone before I can even start bragging about making them!…lol…I have learnt so much already since discovering you on the net Nial..:-) Candles are no longer a mystery, pin bars are my best friends..now I will be able to recognise the consolidations and sideways moves…So here is hoping!..:-)…this makes so much sense!…will definitely draw those support/resistance lines
    – practice will make it perfect..:-)..thank you and cheers!…:-)

  49. Francois Cyr says:

    Nial,

    Excellent article, direct and concise on how to identify the trend. Regardless of how long I’ve been trading, these “reminders” and your insights are invaluable to be….it’s easy to forget what you already know as a trader, and another’s voice can get us back on track!

  50. naveen says:

    Thank you once again. As you said, many times I have given back my profits in the retracement period.

    Another excellent article…

  51. Cezary says:

    Hi Nial. Great article as usual. After a year of hard work and many hours of learning I can say with confidence, that You are probably the best teacher that one can find on the internet, price action is the best way to trade, and indicators create only confusion in market analysis. Take care and best of luck to You.

  52. George says:

    Price Action Is King

  53. taiwo says:

    nial you are a super trader keep more of the articles coming please

  54. Jay says:

    Your article is really amazing. but i have 1 doubt Nial, tat suppose the market is in uptrend making HH & HL , during news time suddenly the market falls down and make a LL breaking the trend. At this position whether we have to wait for the confiirmation of the uptrend continuation or we have to decide tat the trend ends up and the downtrend started ?

  55. Karl says:

    The Best Trades = Trend + Confluent level + Price action signal

    not enough!

    Above this formula: Grow up to be patient enough to sit tight and wait for this triple combination. Otherwise it won’t work :).

  56. Shyamsrv says:

    Very valuable lesson. Hats off !!

  57. surge says:

    Your a stud nial!!!

  58. eric granatha says:

    i always waiting your great new articles every week, and this is another great lesson you’re send to me. Thanks nial

  59. Taylor says:

    What an excellent information for us to clarify and make our mind clearly while we are trading.
    Thanks Nial.

  60. Ramli M Salleh says:

    Thanks Nial.

    Excelent refreashing guide.

    Cheers

  61. ycandco says:

    Hi Nial
    Thank you for the revision. Good to have some refreshment/revision.

  62. Ray says:

    Many thanks Nial, you have a articulate way of explaining your approach to trading. This transfers into my enthusiasm for your next posting. I look forward to your next lesson.
    Best regards Rayh

  63. Rob says:

    Thanks Nial for such an excellent article

  64. Juan says:

    Thank Doctor Nial, you change my life for ever in forex
    God Bless you

  65. Bill Eppelstun says:

    Another great lesson Nial. When you put up an example chart could you put what time frames the chart is in or dosen’t it matter? When I change from 1hr to 4hr to daily it seems to throw out of wack the support and resistance levels. Can you use the same techniques described in this lesson to scalp trades on shorter time frames eg. 5min,15 min, 30min.
    Regards
    Bill

  66. marc says:

    Thanks my inbox is so full of e mails but for some reason yours is not deleted I read it all with intrest thank you. signed Marc.

  67. kotijett says:

    Thanks Nial. Great article great read plenty of educational information to soak up and learn.

  68. Claudio Nataç says:

    Boa noite! Estou aprendendo muito com os seus artigos. Faço cursos desde 2008 e confesso que seus textos são bem superiores a todo o material que já paguei. Gostaria de fazer o seu curso. Mas não falo inglês.

  69. Tomson says:

    Another interesting article, and so needed when to make good trading decisions.

    I guess this really is one of the harder things to learn, when is it a good time to trade?
    Is it a trend, or is it choppy?
    We can see how the different setups looks like, IB, Pinbar and Fakey, but where is it ok to use them?

    This is a help to make a choice if it is or not.
    Thanks a lot.

    Cheers
    Tomson

  70. KRISTOFA OKENTA says:

    What a great lesson again from my “Professor”.
    Thank you so much.

  71. ahsan ahmed says:

    very intresting article and valuableone.

  72. Zsolt says:

    Nial, thank you for this excellent article. Each and every article you post here is better than the previous ones, which are, without exception, also very useful.

  73. Rita says:

    Thanks a lot. Those were vital info.

  74. Judy Blanchard says:

    Thank you, Nial!

    I learned so much with the above lesson. The 21 EMA as a guide to swing points and taking advantage of trends, when they are present, are great pieces of advice.

    Best,

    Judy

  75. Munyr Adamu Umar says:

    Very educating article…. This very article can change some bodies life forever… Nial, more grease to your elbow.

  76. Dave says:

    An eye opening article. I can see several areas where I can sharpen up my trading. Thanks Nial.

  77. louis grossman says:

    Nial: this lesson is the best one I have seen on the subject of trend put into a shot concise perspective, thank you for your excellent lessons. Louis

  78. Dmitry says:

    It’s really important that You don’t just give traders enter and exit points, like others do, but teach them how to identify trading opportunities making them think and learn and get into what they are doing, not just blindly following the signal.

    Great job, keep on going!
    Dmitry

  79. Will says:

    Very helpfull. Thanx Nial

  80. Barisiba says:

    @Nial,you are a great teacher…Thanks for sharing your knowledge, experience and observations here with us….God bless you!!

    Also, Thanks for your time.

  81. hats says:

    hello
    once again only thing I can say is that we do not have enough words to thank you for your great teachings
    b rgds

  82. Himson says:

    Nial it took me 4yrs to finally get what you have been saying all these years. A couple of days ago I was watching an old interview of you and the lite bub came on in my head it was one of those moments where everything came full circle….. I so get it now……. I Thank you a BILLION TIMES you have changed my life forever!!!!

  83. sanele says:

    Great work mr fuller ! I’d like to catch 6000 pips with this strategy

  84. Jusmijo says:

    Thanks Nial

  85. Adam says:

    Hi Nial,
    Thank you once again for your great article, well explained in a simple manner.

    I have learned a lot since I joined your course.

    Regards

    Adam

  86. Ray says:

    Great Lesson Nial..Very straight forward

  87. slivester says:

    great-great article….million thanks mr.nial…..

  88. Sanjay says:

    Great article

  89. Pall says:

    Thanks Nial

    Allways learning from you trend and pasient
    are the frend of a sniper

  90. Imomon Raymond says:

    Thanks a lot Mr. Fuller. This is a free lesson very valuable at all time to me and may be other forex traders. The support and resistance you have been talking about have shown its perfect us in this lesson.

    I hope to be a paid student very soon so that I can enjoy the mentorship I need from you.

    Ray Imomon

  91. Shahed Qureshi says:

    Cheers Niall , another excellent article , very well researched , explained and written. Thanx for all your efforts once again. Kindest Regards

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