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Avoiding False Alarms & Understanding a Profitable Forex Trend System

At this point I’m sure we are all aware of the fact that every profitable forex trend system comprises of certain alerts and rules. For anyone who wishes to hear, profitable forex traders know that the trend is your best friend. A profitable trading trend system would alert the investor as to when to enter a position, based on trend development.

There exist resistance levels and support levels that every profitable forex trend system needs to take cognizance of.  For bullish trend that continues pushing the price of an instrument in the upward direction after breaking a resistance line of the highs, this suggests that an investor enters a long position. The reverse is true, if a trend goes beyond the low resistance line – a sell is advised. A trend line basically does not in itself roll in the bucks from trading without understanding two distinct rules – market consolidation and false trend breakout.

1. Market Consolidation – We experience a market consolidation when a trend keeps moving in a straight line. We find highs and lows in the currency market, but these highs and lows need to be broken by price action in order to verify if the market is consolidating. We find consolidations in the market when price action continues to move higher during a bullish trend. Patience is needed in a bid to see if price would continue in that direction, by breaking past the highs for a bullish trend. The reverse is true, when price tends to go bearish and then starts to consolidate. Allow some time to pass, so that you’ll be able to notice if the trend is continuing by breaking the lows.

2. False Trend Breakout – As an investor, it is imperative to read charts and analyze them. We find trades that are already in the green, turning into false alarms due to any of the following:

i. Just Opened Market &

ii. Breaking Market News

These are just a few of the measures that have been put in place to aid investor avoid false alarm. Do have handy a copy of the forex calendar, this would help you know when any major breakig news is coming and hence stay off trading within the first couple of minutes or seconds. News and weather are factors that can invariably affect a profitable trend following system that is out of your control as a person.

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