Traders employ diverse strategies and techniques to anticipate the next market moving direction; Trend trading is one of the most widely used strategies for the traders, which has been proven accurate. Trend trading is a magnificent way to increase trading revenue in short periods. There are several trend trading indicators with providing a high level of certitude identifying the trend trading assets or a trend trading market.
What is trend trading?
Trend trading is to trade only when an asset’s price or market is on trend, or it follows a well define tendency. Which means the trader will buy or sell only when the market meets the trend trading criteria. John William Henry in 1976 discovered that frequently, the market enters in some type of price tendency. This price tendency is called trend trading; the tendency can either be to price increases or prices decreases. He reviewed thousands of price charts and trading analytical tools. Afterwards, he was able to create a mathematical system, which can correctly identify the trend-trading pattern. Additionally, with the help of some indicators and price charts recorded, he discovered that the price charts create some trading patterns, which are repeated over time. Learning to recognize those patterns entitles the traders with the capacity to anticipate the next price moving direction for any assets. Furthermore, he was no only able to anticipate the next asset’s price moving direction, but also he could estimate that the current trend will last over time, or it will revert.
In a nutshell, Trend trading is buying or selling only when the market or the asset’s price in in trend. In other words, the asset’s price is following the same moving direction for a period. A trend is a constant price moving direction in the same direction for a period.
Trend trading traders do not foresee the future market.
Trend trading users follow the J.W. Henry teaching. He said that the price of the assets or the market prices encompasses all the required information to take any trading decision or investment plan. The economy is influenced by most social, political, and financial factors. Therefore, the asset’s price reflects the entire economy situation for any given moment. By considering the price variation and the current price trader can be able to understand the whole country or region economy situation. The price record on price chart allows traders to identify patterns and understand its effect on the asset’s price or market prices. The good verse trader recognizes the pattern and is able to anticipate with an extraordinary certitude the next price moving direction. Trend trading is not about guessing or betting. Trend trading is based on the ability to recognize the early signs of the previous studied patterns and trade accordingly. Sure, for the uneducated trader, this pattern recognition could be mistaken as foreseen or guessing, but it is not.
Understanding Trend Trading
- Trend trading is buying or selling only when the assets are on trend or a clear price moving direction for a period.
- Trend is the direction in which an asset’s price is continually moving for a period, or where the market is headed. There are three types of the price trend. The characteristic sing is that each
a)Uptrend is a series of uninterrupted consecutives asset’s price increases over a period. Each consecutive low has to be higher than the previous lowest to be considered as an uptrend. The consecutives higher lows is the easiest and faster sign to identify an uptrend state correctly for the reviewed asset
b)Downtrend is a series of uninterrupted consecutives asset’s price decreases over a period. Each consecutive peak has to be lower than the previous low to be considered as a downtrend. The consecutives lower peak is the easiest and faster sign to identify a downtrend state correctly for the reviewed asset
c)Side-trend or sideways this is a controversial topic because several traders do not consider it a real trend. It is when the pattern of downtrend and uptrend are seen every other day for a period.
- Pattern is a recorded price movement, which future outcome is repeated each time it is present. The patterns allow recognizing the different trend trading stages.
- Reversal is the change in the asset’s price moving direction, which is on trend, e.g., an uptrend will reverse into a downtrend and vice versa.
- Trending Charts is the graphical representation of the closing price during a period with the tread, resistance, and support lines
- Trend lines are the graphical representation by lines of a trend. It is done over a price chart, and it is the fastest way to deliver the trend trading information. There are three primary trend lines:
a)Support line is a straight line drawn at the lower part of a price chart, just below the level of the lowest price quote for a period. This line represents the level at which the price has not fallen
b)Resistance Line is a straight line drawn on the top part of a price chart, just above the level of the highest price quote for a period. This line represents the level at which the price has not over pass or has not moved higher.
c)Trend line is a line drawn joining the assets price for a period, in trend trading this line is straight, and its direction highlights the trend direction.
Trend trading basics
- Traders need to devote time to price pattern memorization, identification, and recognition.
- They need to familiarize themselves with the price chart trend trading patterns meaning and the next price moving direction or the call to action pattern and signals.
- Learn the signals and their call to action meaning for trade trading
- Learn the various indicator to confirm trade trading and familiarize with them. Some of the most widely used indicators are: Moving Average Convergence Divergence (MACD), Relative Strength Index (RSI), Average Directional Index (ADX), Parabolic Stop and Reverse (Parabolic SAR) and Simple Moving Average 14. Traders need to learn how to used them and recognized their signals
- Take advantages of the trading platform free account and practice trend trading to be sure you understand the trend trading essential and the different signals the price charts and the indicators offer for you to anticipate the price moving direction by a great certitude.