Trend Trader

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Trend Trading

What is Trend Trading?

Trend trading is a trading style that attempts to capture gains through the analysis of an asset’s momentum in a particular direction. When the price is moving in one overall direction, such as up or down, that is called a trend. Trend traders enter into a long position when a security is trending upward. An uptrend is characterized by higher swing lows and higher swing highs. Trend traders may opt to enter a short position when an asset is trending lower. A downtrend is characterized by lower swing lows and lower swing highs. There are a variety of trading strategies, such as the chikou span.

Four Commonly Used Indicators In Trend Trading

Understanding Trend Trading

Trend trading strategies assume that a security will continue to move in the same direction as it is currently trending. Such strategies often contain a take-profit or stop-loss provision in order to lock in a profit or avoid big losses if a trend reversal occurs. Trend trading is used by short-, intermediate-, and long-term traders.

Key Takeaways

  • Trend trading is a method of trading designed to take advantage of uptrends where the price tends to make new highs or downtrends where the price tends to make new lows.
  • An uptrend is a series of higher swing highs and higher swing lows. A downtrend is a series of lower swing highs and lower swing lows.
  • In addition to looking at swing highs and lows, trend traders utilize other tools like trendlines, moving averages, and technical indicators to help identify the trend direction and potentially provide trade signals.

Traders use both price action and other technical tools to determine the trend direction and when it may be shifting.

Price action traders look at the price movements on a chart. For an uptrend, they want to see the price move above recent highs, and when the price drops it should stay above prior swing lows. This shows that even though the price is oscillating up and down, the overall trajectory is up.

The same concept is applied to downtrends, with traders watching to see if the price makes overall lower lows and lower highs. When that is no longer happening, the downtrend is in question or over, and therefore the trend trader will no longer be interested in holding a short position.

Trend Trading Strategies

There are many different trend trading strategies, each using a variety of indicators and price action methods. For all strategies, a stop loss should be used to manage risk. For an uptrend, a stop loss is placed below a swing low that occurred prior to entry, or below another support level. For a downtrend and a short position, a stop loss is often placed just above a prior swing high or above another resistance level.

Moving Averages: These strategies involve entering a long position when a short-term moving average crosses above a longer-term moving average, or entering a short position when a short-term moving average crosses below a longer-term moving average. Alternatively, some traders may watch for when the price crosses above a moving average to signal a long position, or when the price crosses below the average to signal a short position.

Typically moving average strategies are combined with some other form of technical analysis to filter out the signals. This may include looking at price action to determine the trend, since moving averages provide very poor signals when no trend is present; the price just whipsaws back and forth across the moving average.

Moving averages are also used for analysis. When the price is above a moving average it helps to indicate that an uptrend may be present. When the price is below the moving average it helps to indicate that a downtrend may present.

Momentum Indicators: There are many momentum indicators and strategies. In regards to trend trading, an example might include looking for an uptrend, and then using the relative strength index (RSI) to signal entries and exits. For example, a trader may wait for the RSI to drop below 30 and then rise above it. This could signal a long position, assuming the overall uptrend remains intact. The indicator is showing that the price pulled back but is now starting to rise again in alignment with the overall uptrend.

The trader could potentially exit when RSI rises above 70 or 80 and then falls back below the selected level.

Trendlines & Chart Patterns: A trendline is a line drawn along swing lows in an uptrend, or along swing highs in a downtrend. It shows a possible area where the price may pull back to in the future. Some traders opt to buy during an uptrend when the price pulls back to, and then bounces higher off of, a rising trendline. Similarly, some traders opt to short during a downtrend when the price rises to, and then falls away from, a declining trendline.

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Trend traders will also watch for chart patterns, such as flags or triangles, which indicate the potential continuation of a trend. For example, if the price is rising aggressively and then forms a flag or triangle, a trend trader will watch for the price to break out of the pattern to signal a continuation of the uptrend.

Often times, traders use a combination of these strategies when looking for trend trading opportunities. A trader might look for a breakout through a resistance level to indicate a move higher may be starting, but only enter into a trade if the price is trading above a specific moving average.

Trend Trading Chart Example

The following Alibaba Group (BABA) chart shows several examples of how trends can be analyzed, as well as some examples of potential trades using chart patterns and the trend.

The price starts out in a downtrend. The price then rises through the descending trendline and above the moving average. This doesn’t mean the trend is up, though. Trend traders will typically wait for the price to also make a higher swing high and a higher swing low before considering the trend up.

The price continues to move higher, confirming the new uptrend. The price pulls back and then starts to rise again, forming the first chart pattern. The price breaks higher out of the chart pattern, signaling a potential long position.

The uptrend continues aggressively, forming two additional chart patterns along the way. These both offered opportunities to enter a long position or add to an existing one (called pyramiding).

The price continues to rise, but then starts giving warning signs. The price drops below the moving average for the first time in a long while, it also creates a lower swing low and breaks through a short-term rising trendline. The price makes a new high after that, but then drops below the moving average again. This is not strong uptrend behavior, and trend traders would typically avoid going long during conditions like this. They would also be looking to exit any remaining longs they may have.

The price continues to oscillate around the moving average, with no clear trend direction. Finally, the price slides into a downtrend. Trend traders would be out of longs and avoiding new ones, and possibly looking for spots to enter short positions.

Трендовая торговая стратегия Riffster Trend

Трендовая торговая стратегия Riffster Trend – эффективная система с простыми правилами, в которой потенциальный доход значительно превышает торговый риск.

Трендовая торговая стратегия Riffster Trend – еще один пример классического сочетания индикатора тренда и осциллятора, фильтрующего сигналы, в качестве которого выступает индикатор RSI. Стратегия обладает высокой прибыльностью, поскольку потенциальная прибыль значительно превышает торговые риски.

Входные параметры

  • Таймфрейм: М15 и старше, рекомендуются H4 и Daily
  • Время торгов: любое
  • Риск-менеджмент: после расчета стоп-лосса выбирайте такой объем лота, чтобы риск был не более 2-5% от депозита на одну сделку

Используемые индикаторы

  • RSI filter (25)
  • Riffster indicator power (2)
  • Inverse RSI (7)

Настройка ценового графика

  • Распаковываем архив
  • Шаблон копируем в папку templates
  • Индикаторы копируем в папку MQL4 -> indicators
  • Перезапускаем терминал
  • Открываем график нужной валютной пары
  • Устанавливаем шаблон с именем Riffster Trend Strategy

График должен выглядеть так:

Шаблон торговой стратегии Riffster Trend

Сигналы, указывающие на открытие длинной позиции

  • появилась зеленая стрелка вверх;
  • бар индикатора RSI зеленого цвета.

Примеры входа в длинную позицию

Сигналы, указывающие на открытие короткой позиции

  • появилась красная стрелка вниз;
  • бар индикатора RSI красного цвета.

Примеры входа в короткую позицию

Установка ордера стоп-лосс и тейк-профит

  • стоп-лосс устанавливается выше/ниже предыдущего локального максимума/минимума;
  • тейк-профит устанавливается в зависимости от используемого таймфрейма и валютной пары. Рекомендуется соотношение стоп-лосс к тейк-профит 1 к 3.

Стратегия Riffster Trend обладает простыми правилами и будет особенно востребована начинающими трейдерами. Перед использованием трендовой торговой стратегии Riffster Trend на реальном депозите обязательно протестируйте ее на демо-счете.

Trend Trading Strategies – The Right Side of The Market

Learn how to spot trend trading signals and build a profitable trend trading strategy. In this guide, you’ll learn how to identify a trend in real-time and follow the trend successfully. After you master the trend with proper training, you will also be able to spot changes in the trend direction. As a bonus, we’re also going to reveal some secrets to successfully counter trend trade.

If this is your first time on our website, our team at Trading Strategy Guides welcomes you. Make sure you hit the subscribe button so you get your Free Trading Strategy sent every week to your inbox.

Identifying a trend after the fact is easy. The struggle comes when you try to identify a trend as it’s developing. A lot of the trend trading books will only teach you how to spot the trend when we’re already midway through it.

That’s not an ideal trade scenario!

Michael Covel a bestselling author is the biggest proponent of trading with the trend. “The Complete TurtleTrader,” and “Trend Commandments – Trading for Exceptional Returns” covers strong evidence of how one can become a millionaire by simply following the trend.

Keep it simple and trade with the trade seems to be the devise of many successful traders.

For those of you who want to learn how to trade with the trend keep reading on.

We’re going to start with the basic principles of trend trading and then move forward with some trend rules to help you ride the market trends like a pro.

What is Trend Trading?

Trend trading is a methodology that aims to make a profit through the examination of an instrument’s momentum in a particular direction. When the predominant price move is showing a particular direction, either up or down, that is called a trend.

How to define a trend?

The standard definition of a trend, according to the Dow theory is a series of higher highs followed by a series of higher lows which defines an uptrend. Conversely, a series of lower lows followed by a series of lower highs defines a downtrend.

This implies that the trend never moves in a straight line.

But, the trend takes the shape of a zigzag movement.

Our little slogan inspiration for traders is “keep it simple, stupid!”or KISS.

We don’t believe making trading more complicated than it already is.

So, here is the rule of thumb to identify the market trend with your naked eye:

  • If you see on your chart screen the price rising from the bottom left corner to the upper right corner that’s an uptrend or bullish trend.
  • If you see on your chart screen the price falling from the upper left corner to the bottom right corner that’s downtrend or a bearish trend.
  • If you see on your chart screen the price moving up and down all over the place, we’re most likely inside a consolidation period. In this case there is no trend going on.

This is the basics of trend trading.

Now, let’s see the importance of trading with the trend:

Why use Trend Trading?

If you want to learn how to invest in stocks, or how to trade Forex, you need to have these skills to detect the trend direction. It doesn’t really matter if you’re a swing trader, or a scalper, or a day trader.

No matter of your preferred time frame you need a trend to be put in motion if you want to make a profit.

The scale of the trend doesn’t really matter.

However, the bigger the time frame, the stronger the trend is.

That’s where the expression “the trend is your friend” comes from.

This expression has been the core stone of many trading strategies.

Trading with the trend gives you the advantage of eliminating some of the flaws that inherently all trading strategies have.

We haven’t found the perfect trading strategy yet.

Maybe you have found it!

But a 100% win ratio trading strategy is a myth.

So, as long as you trade in the direction of the trend, even if you’re wrong on your timing, the forces that drive the trend will ultimately work in your favor and eliminate some of the risk.

Everything will fall into place when you trade with the trend.

Secondly, identifying strong trends can lead to potentially make bigger profits.

There are more pips available in the direction of the trend than counter trading.

Please notice the difference of the available pips when trading with the trend compared when you go against the trend.

Pretty obvious which side the winners are.

Ever wondered how to use trend indicators to generate buy and sell trade setups?

Let’s see what are the best trend indicators to identify the direction of the trend:

Trend Trading Indicators

In the technical analysis field, trend indicators are tools designed to help you see the general direction of the market. These technical indicators can help you filter and confirm buy and sell trend signals.

Trend indicators are good at eliminating market noise and give us a better picture of the market trend.

If you want to upgrade your method on how to identify a trend you can use an old trend filter used by legendary hedge fund managers. Professional traders and well-established hedge fund manager uses the key 200-day moving average to establish the direction of the trend.

Billionaire trader, Paul Tudor Jones one of the greatest traders of all time has revealed his trend filter tool as being the 200-day moving average:

“My metric for everything I look at is the 200-day moving average of closing prices. I’ve seen too many things go to zero, stocks and commodities. The whole trick in investing is: “How do I keep from losing everything?” If you use the 200-day moving average rule, then you get out. You play defense, and you get out.”

In other words, if the price is above the 200-day EMA we’re in an uptrend. Conversely, if the price is below the 200-day EMA we are in a downtrend.

Every trader needs to know how to assess the strength of a given trend and asset.

And, one of the best trend indicators that can help you correctly identify how strong or weak a trend is the Aroon Oscillator.

Check out top three trading strategies based on Aroon indicator, which you can use to gain more profits.

You can add to your trading arsenal these trend trading indicators

With a little bit of experience you can train your naked eye to spot trends instantly.

But, the struggle many trend traders face is to exactly pinpoint entries and exit points in order to ride the trend.

What if we can help you to develop one simple trend trading strategy that will generate high probability entry signals?

Below we’re going to share with you a simple and one of the best trend trading setups:

The core of this trend trading system relies on capturing those explosive price movements in the direction of the trend. This trend trading strategy guide will teach you how to increase your risk-reward ratio. Mastering trend trading

Here is the first rule of this trend following strategy.

This will teach you how to define trends like a hedge fund manager.

To eliminate any element of subjectivity, simply throw on your chart the most influential moving average aka the 200-day EMA.

How to determine the trend direction using the 200-day EMA

Are we in an uptrend or a downtrend?

It all comes down to how price is positioned relative to the 200-day moving average:

  • If the price is above the 200-day MA, then we’re in an uptrend
  • If the price is below the 200-day MA, then we’re in a downtrend.

Not all trends are created equal.

Some trends are stronger than others.

In order to assess the strength of the trend, we’re going to use another tool aka the Aroon Oscillator.

When the Aroon Up, which measures the strength of the trend, crosses the Aroon down, a buy signal is generated.

When the Aroon up line is close to the 100 level, and the Aroon down line is close to the 0 level, then the market is in a strong bullish trend.

A trend trading strategy is not complete without a stop loss and a take profit order.

So, how to set your stop loss in a trading market?

As a trend trader you have several options at your disposal.

The key is to take advantage of the best stop loss strategy.

For example, if the price is too far away from the 200-day MA, it doesn’t make sense to place your SL above/below the moving average.

To counter this issue, we can use the trend price structure.

What do we mean by this?

An uptrend is formed by a series of higher highs followed by a series of higher lows.

So, the ideal place to hide your protective stop loss in an uptrend is below the most recent higher low swing point.

This approach makes a lot of sense.

A technical break below the most recent swing low is a warning sign that the market is starting to develop lower lows. This is a break in the previous price structure.

We know that lower lows are found in downtrends. So, it makes sense to exit our trades if we’re buyers.

Let’s now answer another critical question when you try to develop a trend trading strategy.

How to take profits in a trading market?

The best take profit strategy in a trading market is to ride the trend until it ends.

But, we know most traders don’t have the right amount of discipline to ride the trend for months or even possibly years.

We need something that is suitable for the psychological makeup of the retail trader.

Our take profit strategy revolves around the Aroon oscillator.

Let me elucidate on this…

When the Aroon Up crosses below the Aroon Down we like to take profit and liquidate our positions.

In the financial markets, we know that the trend will always end.

In other words, what goes up, must come down.

Uptrends and downtrends are always followed by counter trends.

But, how to properly trade against the trend?

Counter Trend Trading Strategy

“The trend is your friend except at the end when it bends.” – Ed Seykota

Get into the mind of the most successful traders and Hedge fund managers by checking the Top Trading Quotes of all Time – Learn to Trade.

Top market wizard Ed Seykota is the father of computerized trend following systems and one of the best traders of our times. He acknowledges that in order to be great at this game you also need to identify counter trend moves.

We can all learn a valuable lesson from him.

After all, his trading rules have helped him turn $5,000 into $15 million over a 12-year period.

That’s pretty amazing if you ask me.

Let’s now see if you know what is counter trend trading?

If your answer is: a price move, usually smaller in nature, that is opposite to the prevailing trend, is a counter trend move.

Because a counter trend move will usually generate a small amount of pips we need to get in as close as possible from the very start of the counter trend move.

Using reversal chart pattern can help us learn how to spot counter trend trades.

Check the Essential Guide to Chart Patterns: HERE.

Only take a counter trend trade if it passes this 3-step test:

  1. A reversal chart pattern showed up on the chart.
  2. The confirmation of the pattern.
  3. Use best counter trend indicators to confirm the counter trend chart pattern.

Not even the best counter trend trading strategy will work for you if you don’t use proper risk management and exercise discipline.

No matter if you use trend trading vs. counter trend trading strategies makes sure you follow your trading plan.

Final Words – Best Day Trading Stocks

With proper money management, all trend trading strategies have the potential to grow your Forex account relatively fast. The real secret to trend trade successfully is to not close your trade too early. Make sure your trend trade is generating at least a 1:3 risk to reward ratio.

Find out more about the world’s largest capital market in our complete guide to Forex Trading for Beginners.

In the currency market, due to the economic forces at work we can see trends being more prevalent. The long-term trends can last anywhere from a couple of months and can extend into year-long trends. But, most retail traders are only short-term oriented. In this case we’re looking for Forex trends that can last from 3 weeks up to 3 months.

Don’t forget you can make money even with a counter trend trading strategy.

Thank you for reading!

Feel free to leave any comments below, we do read them all and will respond.

Also, please give this strategy a 5 star if you enjoyed it!

(7 votes, average: 3.57 out of 5)

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