What is trend trading?
Trading with a trend implies that in the financial market you need to follow the main price movement, that is, along with the trend. The main trends are buying and selling. But there is an uncertain situation in the market – flat when the price does not rise or fall.
Trend (English trend – tendency) – in the field of financial markets, this is the direction of the price movement of the selected instrument: an increase or decrease in the price of an asset.
Trading with a trend involves opening positions when bouncing off the trend line and closing a position at the opposite trend line. At the same time, classic trend trading implies: in an uptrend – only purchases, in a downtrend – only sales. Flat implies the possibility of both buying and selling.
- For an uptrend: A buy trade is opened when a rebound from the support line and closes near the trend resistance line.
- For a downtrend: A sell trade is opened when a rebound from the resistance line and closes near the trend support line.
- For flat: A buy position is opened upon a rebound from the support line and closes near the resistance line. A sell position is opened in a mirror image.
An example of working with a classic strategy
For example, consider the securities of MMC Norilsk Nickel and disassemble their daily cut. In this chart, stocks paint a very confusing picture on a large scale. But if we look at the quotes in detail, we can easily see quite clear trends.
The trend strategy is simple: if you break a downtrend – sell securities, if you break an uptrend – buy. We hit the “side” – we are waiting.
The essence of trend trading
Defining a trend
When you start trading with a trend, you should clearly and clearly define the trend in the market. Since there are buyers and sellers on the exchange, the trend direction is formed depending on supply and demand.
There are three types of trend movement:
- The bullish trend (growing) – price growth and you need to enter buy (buy assets).
- Bearish trend (downtrend) – a decline in price should enter sell (sell assets).
- Flat (range) – the price is in a narrow range and it is not clear which trend dominates the market.
Understanding what the current trend is in the financial market, the trader prepares for his entry into it. In case of uncertainty and lack of understanding of the current market situation, it is not recommended to enter into transactions.
Entry and Exit Points
As in any business, when trading Forex, you should clearly understand what needs to be done to make a profit. An important factor in the success of any trader is drawing up a personal trading plan – a trading strategy.
Market entry and exit planning:
- Determination of the entry point – pattern (graphical model), news exit, levels.
- Placing limiting orders SL and TP. The stop is mandatory!
- Time of the transaction in the market.
- Determine the risk of entry and whether it is acceptable for the trader.
- Trader’s actions in case of uncertainty in the market.
- Cases when trading stops completely.
Action in an unforeseen market situation
In case of any uncertain or unclear situation when trading in the foreign exchange market, you should urgently suspend your trading and figure out what went wrong. There are a lot of such situations for traders, so it is important to notice them in time and take the right action.
Analysis of your deals
At the end of the trading session, for example, on weekends, each trader is obliged to analyze the transactions he has made. With this approach, in the future, the number of unprofitable entries will decrease, and the understanding of the market will improve.
Trend trading will definitely make a profit after honing your skills on demo accounts or using no deposit bonuses. Also, you can get real money by participating in Forex contests on demo accounts with Alpari.
The essence of this method is to follow the trend. If the price periodically and regularly shows new highs, then we buy for a small part of our deposit (for example, 1/4), wait for a new high, and buy another part. So, after a while, we will be profitable and will follow the trend with a full deposit and accumulate profits.
But this approach has its drawback, which is that the price can hardly change for a long time (week or month). It can fluctuate in the price range, but its average value can remain at its original level.
If you trade with the trend, then you need to do this either in a bull market, when all securities are growing – buy and hold. Or bearish, when all prices are falling – sell and hold. These are the most effective strategies for trend trading.
Having accumulated a decent profit and having determined the end of the trend, you need to fix your income. After that, this operation can be done several times.
There are very big and long-term trends. For example, Sberbank shares increased from 5 rubles to 115, then the price dropped to 15 rubles, then rose again to 110 rubles. But there are many other instruments on which we can observe many more ups and downs in price over the same period. For example, futures on the RTS Index. Medium-term trading can show no less profitability.
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