The premise of trading the trend is simple — to follow the market momentum. Most likely, it will have a huge impact on market direction. Therefore, it can be an effective indicator of what your next move should be.
While it might sound simple in theory, it can be more complicated in practice. It’s not as easy as identifying whether the market is up or down. You also need to know what these movements mean, both in the short and long term.
Keep on reading and learn how to trend trade. Arm yourself with the right knowledge, and it will be easier to make money in your trades.
Trading Trends: Tips for Trading
Sure, trend trades can be profitable. However, not everyone who follows trends will succeed. To increase the potential of realizing returns, below are some tips to keep in mind.
Know the Stages of a Trend
Market trends can be young, mature, aging, and reversing. The goal is to catch the trend while it is young or during its early stages of maturity. When it’s aging, the trend may no longer be reliable as it can reverse soon.
Set a Timeframe
Determine how long you would like to stay in the trend. It will be influenced by your trading timeframe. Don’t wait longer than necessary.
Confirm the Trend
To be successful in trading the trends, you must have multiple sources for confirmation. For instance, you must use different technical indicators. You should also do your research to give you a better idea of the overall market sentiment. Our BIAS Depth Heatmap is a great way of confirming trend, check it out HERE.
Find Out the Strength of the Trend
If it’s a strong trend, the buyers control the market, so there’s little selling pressure. The opposite is true in the case of a weak trend. It means that buyers have a slight advantage, although the buyers are also fighting to control market direction.
How to Make Consistent Profits by Trading with the Trend
Here are some things that can help maximize profitability from trading the trends.
Use the Right Indicators
Technical analysis is one of the foundations of success in trading the trend. Hence, you must find the best trend following indicators. Use not one but a combination of these indicators to make them more reliable. Our Swing Trading Bundle is specifically designed for Trading The Trend, check it out HERE.
If you’re looking for the best indicator for trending market, one that you should not miss is the moving average. When the price moves above the average, the market is in an upward trend.
Utilize the Right Tools
Learn how to scan for trending stocks. You can use online tools, making it easier to determine which ones will go upward, downward, or sideways. These tools rely on massive data, so you can make more intelligent trading decisions.
Go Beyond Charts
It can be tempting to just look at the charts to identify where the market is heading. However, for better decisions, consider other factors. For instance, look at news articles or consider the overall global market condition.
Protect Your Trades
One way to do this is by having a limit order near the trend line. The buy limit must be in the support line when the market is moving up. Meanwhile, your sell limit must be near the resistance when the market is going down.
Further, you should also have a stop loss order. However, you should not make it too tight. Provide a leeway to consider the impact of market volatility.
What is Trend Trading and How to Use It To Your Advantage
First, let’s define what a trend is. In a nutshell, a trend refers to the market or asset’s overall direction. It dictates where the market is heading, with historical performance as the basis.
There are three possible trends in the market:
- Uptrend: It happens when there are higher highs and higher lows, representing increasing peaks and troughs.
- Downtrend: This is when the highs and lows are lower than the previous.
- Sideways Trend: Also known as consolidation, it is when there are sideways movements within a horizontal range.
Now let’s talk about trend trading. A simple definition is that it captures gains through momentum. Meanwhile, this momentum can be heading in the three directions earlier mentioned.
One of the principles behind the trend trading system is that the price does not move in a straight path. More so, it is predictable within a specific timeframe. To trade the trend, you must also base the strategy on a pre-determined period.
Understanding the Importance of Identifying Trends in Trading
Among others, it’s important because it can give a logical sense of where the market is heading. This means that your strategy is based on solid evidence. In turn, you can yield favorable outcomes.
Speaking of being logical, identifying trends prevents you from getting emotional. Any seasoned trader will agree that being profitable requires leaving your emotions outside the door.
In addition, to trade with the trend means you can catch the trend early on. You can also time your market and entry perfectly. Plus, it does not require a lot of time.
By identifying trends, you can cut your losses early in the game. You don’t need to wait a long time before your losses become more catastrophic.
The Psychology of Trend Trading
If you’re not yet convinced that trading the trends can be profitable, let’s have a simple analogy. Let’s say that there’s a new store in town with a long line. You’ll probably be falling in the same line to try what the store is offering.
The same thing can apply to the financial market. If there’s an uptrend, it means many people are believing in the future of the market. This way, you can jump in before it’s too late.
Meanwhile, if it’s a downtrend, it means that people are losing confidence. This may be the perfect time to exit. Otherwise, you might end up losing a lot.
Nonetheless, many of these trends can be temporary. The market can recover in due time, and that’s another trend you should monitor. Act before you can no longer catch the trend.