Start trading eToro

Saturday, July 21, 2012

6 important trend trading tips

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.

If you want to see and experience what real investing in financial markets such as Forex, stocks and commodities is all about I recommend trying innovative social investment platform of Etoro. Initial deposits are as low as a few hundred bucks. The best dealer I have heard of so far! 

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:

Trading financial markets carries a high level of risk, and may not be suitable for all investors. All information on the blog is of educational nature and cannot be considered as advice, recommendation or signals to trade in any financial markets.