Trend trading is one of the most favorite trading methods for full-time traders. Those who trade with the major trend, tend to do well most of the time. In fact, they are able to avoid most of the false signals in the market. The novice traders think trend trading is an easy task. In fact, they think they have mastered the art of trend trading strategy after learning the basics. Eventually, they make some silly mistakes and blow up the trading account.
The trending trading method might be an easy task but requires precision. Unless you can execute the trades with a high level of precision, you should not expect to make money by taking the trades with the trend. To make things easier, we are going to highlight the top four common mistakes which cause you to lose money even after trading with the trend.
1. Trading The Lower Time Frame
Finding the trend or using the trend line in the lower time frame is one of the biggest mistakes of novice CFD traders. You need to draw the trend line in the H4 or the higher time frame. If you draw it in the lower time frame, you will never get accurate trading levels. Most of the time, you will be taking the trades in the retracement phase and thus lose money. To make things easier, we are going to give you a simple example. Let’s say the EURUSD pair is in a strong uptrend in the daily time frame. But if you move the 5 minute or the 15 minute time frame, you might find a strong downtrend. This is due to the fact, the market is in the correction phase in the 15 minute time frame. So, if you short the EURUSD pair, you are just taking the trades against the long-term prevailing trend.
2. Ignoring The Price Action Confirmation
As a trend trader, you should learn to use the price action confirmation signals. The smart traders at Saxo Bank always use the price action signal to determine the futures market direction. The price action signal gives you accurate information on whether the trend line is going to hold or not. If you learn to trade with the price action confirmation signals, you should be able to avoid the major trend reversals in the market. Thus, your success rate will be much higher and you will make more profit.
3. Trading The News
Most of the time, novice traders execute the trades during the news. But as a trend trader, you should always execute the trades by analyzing the economic news event. If you intend to trade the news, you need a different trading method. Without having a valid trading method to trade the news, you should not use the trend line. In fact, news factors are the prime elements that cause the break in the trend line. So, to protect your trading capital, you should learn to trade the major news and then incorporate the trading method with the trend trading strategy.
4. Trading With High Risk
The majority of the inexperienced CFD and FX trend traders are losing money as they don’t trade with proper risk management rules. While taking the trades with the major trend, you should be taking only 2% risk. If you risk more than 2% of your account balance, you are going to have a tough time recovering the losses. At times, you may think the trade setup is perfect and you can win a big amount of money. But nothing in the future market should be considered as a perfect trading opportunity. You should be well prepared to accept the losing trades and then you can execute low-risk exposure trade in the trend lines.
Time To Trend Trade
Take your time and learn about the foreign exchange currency market details in a very strategic way. Never rush to make a big profit in this market or the crypto / CFD / stock markets because if you do so, you will be losing money in the long run. Take your conservative steps and follow your trading rules of forex for powerful potential profits. Don’t invest more than you can afford to lose and do your research before investing with trend trading tactics!