3 Reasons to Trade with the Trend in Forex

Today, I want to share three reasons why trading with the trend is often more advantageous. This insight also helps guide traders in building their own trading systems.

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Trading With or Against the Trend

Both trend-following and counter-trend trading can be profitable. As discussed in the article “Trends and the Yin-Yang Principle”, trading style is flexible.

Here, when I say “should” trade with the trend, I do not mean “must.” You can trade either way as long as your strategy produces consistent winning trades. However, trading with the trend provides some clear advantages worth considering when designing your trading system.

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Reason 1: Changing a Trend Takes Time

Each timeframe has its own trend.

• On M1 (1-minute) charts, trends may appear short-lived, lasting only a few hours. Observing hundreds of M1 candlesticks in a few hours makes trend shifts appear rapid—but they’re just micro movements.

• On D1 (daily) charts, a trend can last months or even a year before changing.

Counter-trend trading is essentially betting on retracements or expecting the trend to reverse.

• Trading retracements is risky, like swimming against a strong wave—you may quickly lose momentum or be swept away.

• Betting on trend reversals is slightly safer if clear reversal signals appear, but your profit is limited to the first portion of the new trend. Continuing to trade in the same direction after a trend reversal naturally makes you a trend follower again.

Key insight: Most of the market’s time is spent moving clearly along a trend; reversals occupy a small fraction of total time.

Example: EUR/USD, H4 chart, February 2, 2018.

• The uptrend is obvious and sustained for months. Trading with the trend means buying consistently.

• Counter-trend trading can profit on retracements (AB, CD, EF) but is riskier and yields smaller profits.

• Trend changes only occur when price decisively breaks old highs or lows with increased volume.

Conclusion: Trading with the trend aligns with the majority of market movement, improving probability and safety.

Fun analogy: Summer is mostly sunny. Waiting for rain to water your plants is less effective than simply using the sun to dry clothes.

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Reason 2: Provides Psychological Stability

Trading along the trend provides clarity and confidence:

• Identify the trend, trade in one direction (BUY in uptrends, SELL in downtrends) until it changes.

• Wait for confirmation of a new trend before adjusting your strategy.

Benefits:

• Stable mindset when analyzing and executing trades

• Reduced stress from losses or volatility

• Improved discipline and decision-making, essential for long-term trading success

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Reason 3: Easier to Exit Losing Trades

Effective risk management involves stop-loss (SL) and take-profit (TP) levels.

• In trend-following trades, SL is placed where a trend reversal is confirmed. TP can follow resistance/support levels or ride the trend.

Without SL/TP:

• Counter-trend trades: If the price continues in the original trend, it may never return to the entry point, making breakeven difficult. Recovery may take a long time.

• Trend-following trades: If the trend reverses, price often retraces to test the breakout zone, allowing quick breakeven exits.

Example: EUR/USD, H4 chart:

• Uptrend: buy at retracement points (1,3,5,6,8,10,12,14,16).

• Buying on non-retracement points (2,4,9,11,13,15,17) is riskier.

• If price temporarily dips after entry, trend-following traders can exit near the retracement zone, minimizing losses.

• Counter-trend traders entering at peaks may see price continue upwards, making it difficult to exit safely.

Guidelines for trend-following trading:

1. Determine the primary timeframe based on your trading goals (pip target, duration).

2. Use two additional timeframes:

   • Higher timeframe: detect potential reversal zones

   • Lower timeframe: optimize entry points

3. Trade only when the trend is clear; avoid ambiguous setups

4. In uptrends, the first retracement is often the best buying opportunity. Be cautious near double tops (M-shaped formations). Downtrends are the reverse.

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Conclusion

Trading with the trend offers:

1. Higher probability trades due to majority market movement

2. Stable mindset and clearer decision-making

3. Easier risk management and breakeven opportunities.

Trend-following is not mandatory, but understanding its advantages is crucial for building a robust trading strategy.

Thank you for reading and sharing. See you in the next article!

Best regards,

CaPhiLe.Com