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.
As this week comes to a close, we are looking ahead at future setups that could be some of the best opportunities for the next several trading sessions. Here are some pairs for next week that we are looking at. EUR/JPY Recent data has shown a slow down in the German manufacturing sector. With European […]
When it comes to testimonies, it's all in how you say it. Jerome Powell has to be very particular in the way he makes his statements and answers the ensuing questions. Here is what might be in store for the market in the coming days and weeks, and whether or not there will be more […]
The historically 'safe' currency to hold in times of recessions is in a unique situation now with a couple factors in place. Here is why the yen is stronger today as well as some trade setups that could push its value either up or down. Weaker Yen Now, Stronger Yen Later The Bank of Japan […]
DISCLAIMER: All comments made by TraderNick’s Forex Group, LLC are for educational and informational purposes only. All comments should not be construed as investment advice regarding the purchase or sale of any securities or financial instrument of any kind. Please consult with your financial adviser before making an investment decision regarding any securities or financial instruments mentioned by TraderNick’s Forex Group, LLC. TraderNick’s Forex Group, LLC assumes no responsibility for your trading and investment results. All information on any of the platforms utilized by TraderNick’s Forex Group, LLC was obtained from sources believed to be reliable, but we do not warrant its completeness or accuracy, or warrant any results from the use of the information. TraderNick’s Forex Group, LLC, its employees, representatives, and affiliated individuals may have a position or effect transactions in the securities and financial instruments herein and or otherwise employ trading strategies that may be consistent or inconsistent with the provided strategies. Trading of any type involves very high risk and may not be suitable for all investors. TraderNick’s Forex Group, LLC, its subsidiaries and all affiliated individuals assume no responsibility for your trading and investment result. Read our full disclaimer here