This blog is all about
various market trends that happen in various markets and last for various
periods of time. In the post I wanted to share with you with some tips that
would help you to trend trade. I know that you will never have a clear tendency
in the market, but when they do develop you have to know how to take advantage
of that.
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1. Firstly, you have to find
out whether the market is in a range, going sideways or trending. How do you do
that? Not very difficult! In an up trend you will usually see higher highs
followed by higher lows. In a downtrend you will see lower lows followed by
lower highs. If you do not see that the market is not in a state of a trend. If
the market is going nowhere, it is probably going sideways. If it is fluctuation
by some set support and resistance levels it is probably in a state of range.
2. Secondly, (if market is
not going upwards or downwards at the moment) you need to see whether the price
is in consolidation period and may resume itself soon or it is over and the
market will go into long ranges or possibly even sideways movements. It is very
natural for securities to pause and rest after some strong moves (upwards or
downwards). That is a sign of a healthy trend. If market goes too fast without
stops in one direction you can expect the move to exhaust itself very soon.
You can also be sure about
one thing: that at some point traders will no longer be willing to pay a high
price for a security that is going up and sell at very low prices when a
security is going down.
The thing that helps you to
see whether it is only a consolidation before another run up is that corrections
(counter tendency moves) in a trend are very fast and quickly form reversal
patterns and continue the ride in the previous direction. There might be a few
days or a week of going against the major tendency, but higher highs and higher
lows (in upward move) and lower lows and lower highs (in downward move) are
still intact.
3. Thirdly, when you see
that market formed a reversal pattern after counter trend is over, you should
prepare to add to your position and go with the trend, or if you do not want to
add to your risk, you should move your stop loss order closer to the current
price.
4. Fourthly, if you see more
and more choppy price action it might be a warning that a trend is about to
end. Therefore, you should be alert and ready to get out of the market any
time. Avoid opening new positions if you see this.
5. Fifthly, When the slope
of the moving average (let us say 200 or 50) starts flattening it is a signal
of a move which will be over soon. Do not open any more trades.
6. If the security fails to
make new highs (in an upward trend) and new lows (in a downward trend) for
weeks it is a strong warning about the possible end of the move, which maybe
around the corner. Do not open any more trades in the direction of the move and
be ready to close all of your orders or to be stopped out.
Ok, I will finish now and
keep other trend trading tips for
another time. Hope you benefited from the post. Have a nice day!
See also:
Disclaimer
Trading
financial markets carries a high level of risk, and may not be suitable for all
investors. All information on the blog http://trend0.blogspot.com/ is of educational
nature and cannot be considered as advice, recommendation or signals to trade
in any financial markets.