One of the oldest sayings in financial trading is “the trend is your friend”, you will find it quoted somewhere whenever there is any discussion about trading, and yet despite that, it is also one of the most ignored bits of advice in the industry too.
What it means is simple, if the trend is upwards, long positions benefit. If its down, short positions will do well. Both logically and philosophically, it makes sense, so why is it ignored by so many? You see it so often where a currency pair are trending down, and someone confidently announces they are going long, sure that the downtrend is done, and they will ride the turn to massive profits.
It very rarely works that way. Its like trying to stop a moving bus, its much easier to just jump onboard than it ever will be to bring it to a halt. But every trend, every day, people try to stop that bus, so why does it keep happening?
Not just greed, we’ll get to that in a minute, but greed is always a driver. The closer you get to the start of a trend with your trading, the longer you can ride it and the bigger your profit, so everyone is desperate to be trading in the right direction as soon as the trend shifts, but greed does strange things to traders. It lets you see the things you want to see whether they are there or not, it gives you complete confidence in choices even when there is nothing to support them, and that can only lead to one destination. Bad trading aka big losses.
Trends rarely turn on a dime, and you can make good money by following trends even if you wait to confirm a trends sustainability before jumping in. There is no need to be second guessing the market, that just increases risk. Instead, avoid the rush for money, don’t let emotion take over and wait for the right moment, when you know the trend is set before setting your position. I mentioned earlier that it is not just greed that leads to these bad choices, there are other factors too. Any search online about trading reveals millions of hits, there is so much information out there that it can be overwhelming, especially for those trying to find their feet in the markets.
Some of that information may not fit your trading. In terms of trends, one of the most famous quotes is from perhaps the greatest investor of them all, Warren Buffett. He says to be greedy when others are fearful, but while that works for him, who invests and has invested over periods of years or decades and has the funds to ride out losses until they turn back into profits again, it is not a great idea in fast moving forex markets that you will want to be in and out of in much shorter periods due to the much higher volatility. Not every piece of trading information is right for you. That doesn’t mean its false, Buffet has made more money than many countries, but it does mean that you need to refine the information you see and understand whether it is right for your style of trading and financial situation. Don’t chase profits, it focuses your mind on greed, a negative emotion, and that can lead to bad choices. Instead, focus on the logic of your position, regular profits over time at a lower risk are better than chasing that one big win with much higher risk. Its better for your stress levels and for your bank balance to be methodical and analytical, rather than emotional, when making trading decisions.
Stay positive, stay alert and be consistent in your approach, and never let greed or other negativity guide you. In the long term, you will always gain more from positivity than negativity.