One of the most popular strategies that traders use from beginners to experts alike, is trend trading. Trend trading is simply generating position(s) on a currency pair, stock or index based on the overall momentum of the market. If prices consistently move in a single direction over time, then you are looking at a trend.
How to spot a trend
When looking at any trading chart, you'll notice that prices are always moving up and down. But to spot a trend, you will see either higher highs and higher lows or lower highs and lower lows.
On the chart above, notice how each consecutive low is higher than the one before, and it's the same for each high too. In this case, higher lows and higher highs on the SPY indicate that a long term bullish trend is in play.
Popular Trend Trading Methods
The cool thing about this strategy is that it is used by both beginners and veterans in the playing field. That's because it's an easy technique to spot and billionaire investors like CEO of Berkshire Hathaway, Warren Buffett, use to generate billions of dollars. Of course, he has many different methods of trading, but his overall sentiment for stocks is to buy and hold.
Here are some popular methods of trading the trend:
A trader might see the start or continuation of a trend and make a one-time buy at the perceived beginning of a trend. It's difficult to spot the very start of a trend, but if you catch it, you can be holding on to long term profits. Some traders may get anxious after making any sort of profit on the first upswing and want to close early. But as you can see, that would have been a mistake on this CAD/JPY pair.
Here is a similar method, but instead of buying once, the investor puts in several entries on the way up. Accumulating your position size can be way more profitable than buying only once. If this trader bought at all these points and sold reasonably close to the high, all those positions add up over time and can be extremely profitable.
Another technique to trading the trend is by taking trades within the trend. After noticing that trend is in place, a trader might enter a buy on a dip and sell after an upswing. This is where the phrase "The Trend is Your Friend" comes from. Using the momentum of the overall momentum, a trader can enter on a dip and wait for the trend to take over. This way, entries do not have to be exact. Even in drawdown, if your position is pro-trend, traders usually wait in their drawdown anticipating the trend's momentum.
You can think of trends as the tide: Waves wash back and forth on the beach, but at the same time, the tide moves further and further on to land. And then, the tide contracts and moves farther out to sea, all the while the waves are in a constant back-and-forth motion. The waves represent short term swings and the tide is the longer term trend.
Trend trading is one of the most popular strategies out there as it’s one of the easiest techniques that traders can do. If done right, you could be looking at some big winners in the future. The main thing to focus on when trend trading is controlling your patience, letting the trend work itself out. Let your winners run and be patient. After all, the trend is your friend!
Hope you enjoyed that article! If you are interested in joining our trading community, we have chatrooms, trade alerts from our top traders, and educational content. You can join using the link below, and get a discount on your membership.
Please note that this email is my personal opinion only. I am not a licensed financial advisor, and any information shared or discussed is not to be construed as investment advice. Trading and investing involves a degree of risk, and is not suitable to all investors. Please consult with your financial advisor before making any sort of investment decisions.
Looking for a Broker?
Check out our favorite brokers & reviews! Find brokers available in your country, or our top rated brokers to consider.
Weekly Forex Forecast for GBPUSD, CADJPY, GBPAUD, XAUUSD (17-22 January 2021) Hey everyone! Welcome to this week's forex forecast for the week ending January 22nd, 2021. I'm TraderBart with A1 Trading, and this week I'll be looking at GBPUSD, CADJPY, GBPAUD & XAUUSD. GBPUSD Looking at GU on the Daily timeframe, price has been channelling […]
Weekly Forex Forecast for GBPUSD, EURCHF, USDJPY, XAUUSD (10-15 January 2021) Hey everyone! Welcome to this week's forex forecast for the week ending January 15th, 2021. It's so great to be back, I hope everyone's had a fantastic holiday, and I hope everyone's motivated to work 10x harder than last year. I'm wishing everyone nothing […]
Throughout the year, we've seen many changes to the way we trade, how we manage risk and how we interpret the markets. The new insights we have gained over the months usually come after years of trading and adapting to ever-changing environments. We've done all that in a matter of months! Up until the New […]
Politics preventing new financial stimulus The economic recovery in the major global economic powers depends on several important factors. One of the most vital part, the spread of the virus and the government's answers to it. With a decrease in daily cases of COVID-19 to 50,000 in the U.S.A. Yet U.S. A remains the most […]
Our team has unfortunately received many reports of scammers using our content and pretending to be us. While we will continue to report these accounts to the authorities as we receive reports, we may not always catch them in time. Below our a list of things to look out for before making a purchase to any […]
Warren Buffett is one of the most idolised, investors in the world. At the time of writing , his company, Berkshire Hathaway, has a market cap of $495 billion and Buffett himself has a net worth of $79 billion. His approach to value investing, combined with his influence over the companies he invests in , […]