Trend trading. Is it difficult?

Trend trading strategies are probably the most popular type of strategy among traders and investors. In fact, many fund managers prefer to use them because trend trading provides a fairly favourable profit to risk ratio.

Trend trading is the process of analysing the directional dynamics of the market and participating in its movement. As soon as the market starts to rise or fall, traders and investors immediately join this movement, and the more powerful the movement, the more participants get involved in the process. This is called herd mentality.

A trend can develop in any timeframe. Traders can use short-term strategies like scalping, investors prefer longer timeframes, and both have their trends. But most trend traders still prefer to use long-term strategies, simply because macro trends are easier to track and therefore easier to profit from.


Principles of Trend Trading:

  1. The value of time scale directly determines the accuracy of trade signals. The larger the selected interval on the chart, the more reliable information the trader will receive from the analysis. The line, built with the forecast for the day, will be more accurate than the dynamics for a few minutes or an hour.
  2. The duration of the analysed line is also very important. The farther the trend goes, the more informative the graph is. If you take a period of fifteen minutes, the investor will not be able to forecast the situation for the next few hours. Such a picture will be one-sided, with false signals.
  3. When constructing the trend line it is recommended to use a large number of touches. The more often the price touches the trend line, the more stable it is. When a quote has bounced off the chart three or more times, an investor confidently opens a deal in the specified direction.
  4. The strength of the trend is visually determined by the angle of slope. The faster the trend rushes in comparison with the underlying horizontal, the stronger it is. The big angle of slope is always the indicator for opening of the obviously successful deal. A flat trend will show weak impulses, it is desirable to wait for brighter dynamics and only after that to enter the market.

Countertrend Trading

Trading against the trend is a strategy that assumes a reversal of the current trading trend and tries to profit from that reversal. This strategy can be used at any time, but is most often used when a trader sees great potential for a reversal. Typically, trading against a trend can also be referred to as swing trading, which refers to the opportunity to take advantage of a trend that reverses or fluctuates in a new direction. This strategy is risky and is recommended only for experienced traders.

 

Conclusion

Trend trading strategy is one of the easiest, most interesting and profitable variants of work in the long term, if the trader is ready to hold a position as long as possible. There are also disadvantages to this strategy. Signals for trend trading from the daily chart will be formed rarely and it is necessary to learn to combine several time intervals for a better search of signals and ideas towards the main trend. You do not have to catch the beginning of the movement, you can do it in the middle, especially if there are doubts, it is better to stay out of the market. As Bill Wolfe said in his book “Wolfe Waves”, the suitable situation will definitely appear in the market, you just have to wait patiently and not waste your energy on obscure positions for a trader. 

Leave a Reply

Your email address will not be published.