The Trend is your friend
How do we use a trend?
What is a trend - The direction the market moves is called a trend. This can be either sideways, up or a downward movement. We are looking to make money by buying when the trend is up and selling when it's down.
When we look at a price chart we see a zigzag pattern of peaks and troughs. These peaks and troughs are created by the supply and demand in the market.
By looking at the price chart we can see if the peaks and troughs are rising. If they are we have an up trend. When we have an up trend we can open a buy trade let the rising market make us a profit.
When we are in a descending market the peak and troughs will keep getting lower. This is a downward trend and we profit can by selling the market and then letting the market continue to fall.
When the market is moving sideways it is called trend-less. It will move between two points in the market and it will stay between these points until a trend develops. This can be a difficult time for a trend following system as it can lose money. A trader can use a sideways trading system during these times and buy (bottom) and sell (top) at the top and bottom of the trading range.
Once we understand that we can profit from a trend. We need to understand that different trends can develop in different time frames.
There are 3 time frames for a trend. These are near term trend, intermediate trend and major trend. A near term trend will last up to 3 weeks. An intermediate trend will last from 3 weeks to 6 months and major trend is over 6 months.
The type of trend we are trading depends on the time frame we are using. We may have an up trend in the monthly chart but a down trend in the daily chart. It is essential that we understand the time frame and the trend we are trading.
When we hear the news or use our favourite financial website they may talk about a trend. To be able to profit from this information we need to know what time scale they are talking about. Otherwise the information they are providing will not help us.
What is a trend - The direction the market moves is called a trend. This can be either sideways, up or a downward movement. We are looking to make money by buying when the trend is up and selling when it's down.
When we look at a price chart we see a zigzag pattern of peaks and troughs. These peaks and troughs are created by the supply and demand in the market.
By looking at the price chart we can see if the peaks and troughs are rising. If they are we have an up trend. When we have an up trend we can open a buy trade let the rising market make us a profit.
When we are in a descending market the peak and troughs will keep getting lower. This is a downward trend and we profit can by selling the market and then letting the market continue to fall.
When the market is moving sideways it is called trend-less. It will move between two points in the market and it will stay between these points until a trend develops. This can be a difficult time for a trend following system as it can lose money. A trader can use a sideways trading system during these times and buy (bottom) and sell (top) at the top and bottom of the trading range.
Once we understand that we can profit from a trend. We need to understand that different trends can develop in different time frames.
There are 3 time frames for a trend. These are near term trend, intermediate trend and major trend. A near term trend will last up to 3 weeks. An intermediate trend will last from 3 weeks to 6 months and major trend is over 6 months.
The type of trend we are trading depends on the time frame we are using. We may have an up trend in the monthly chart but a down trend in the daily chart. It is essential that we understand the time frame and the trend we are trading.
When we hear the news or use our favourite financial website they may talk about a trend. To be able to profit from this information we need to know what time scale they are talking about. Otherwise the information they are providing will not help us.
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