Trend trading is just a trading approach that offers the potential to reap greater profits by capitalizing on large market moves. You will find two main concerns working with trend trading; either the market is trending upwards (bull trend) or trending downwards (bear trend). For the trend trader to profit, it is important to correctly identify the trend before a trade is placed.
As it pertains to trend trading, when the trade has been placed, the trend trader will most likely stay in the trade until such time so it appears the general trend has changed.
Trends occur at different time frames and can be seen on various time-frame charts. A pattern trader, swing trading being more a long-term trader where trades usually last 2-3 weeks or even more, will more than likely define a tendency from analyzing an everyday or greater time-frame chart. Minute charts may be used for fine-tuning entry, they actually would not be useful for determining the trend.
The time-frame of the charts used is vital to the trend trader. If the trend has been defined on a weekly chart, it’s the weekly chart that needs to be used to ascertain when the trend has ended as well. Using this method, the trader is not exiting a weekly or greater trend just because the trend has changed on the lower time-frame daily chart.
There are lots of counter-trend moves that occur inside a complete trend move. They’re usually seen on the lower time-frame charts in respects the time-frame used to define the trend. For instance, if a weekly chart can be used to define a bull trend in the SP500 market, there will be moves against this bull trend that will be obvious on an everyday time-frame chart. The trend trader would normally stay in a trade even though the market is moving against the position, as it is expected to recover soon if the trend remains intact.
Trend traders often use indicators such as the moving averages to ascertain when to enter and when to exit. For instance, a tendency trader may buy when the 50-day moving average is greater than the 200-day moving average, and sell when the 50-day moves below.
For some traders, remaining in a trade when the market is making a move from the trend direction is difficult to do. You need to stay glued to your guns and avoid reacting to the market as it moves to erode your accumulated profits if you intend to be successful as a strict trend trader.
Another kind of trader to consider could be the Swing Trader. Swing traders usually trade off the daily time-frame or lower (minute charts). Swing trading is about after the market’s almost certainly current direction. For new traders, swing trading can be a more efficient approach because of the shorter period of holding a trade and usually less exposed in risk capital. Swing trading is known as by many to be a simpler and less stressful way to enter the markets.
The swing trader will most likely go long when the short-term market is confirming a swing bottom and looking to move up, and going short when the market is confirming a swing top and looking to move down. Thus while the trend trader may be holding an extended centered on a bullish weekly trend, the swing trader might be either long or short in this same period because of the direction the market is currently moving in the lower time-frame.
With trend trading, the cons are clear. You have to enable possible large moves against your position when the trend is in a counter-trend phase. With swing trading, the cons may also be clear. While the general market is trending in a single direction, the swing trader will at times be trading against this trend that is often wrought with greater risk than trading with the general trend.
Therefore, when it comes to the negative areas of both trend trading and swing trading, you will want to simply use the best of both?
In order to accomplish this, it is important to ascertain first the general trend direction much such as the trend trader would do. So if you do so centered on moving averages as in the sooner mentioned example, then your entire trades should only take that direction. Therefore, if the trend happens to be bullish, take long trades off swing bottoms and look to exit off swing tops rather than shorting them.
Several years ago I wrote a training document called the Guidelines that does in the same way I’ve described in this article. We first identify the current weekly trend centered on the newest formation of a weekly swing top or bottom with regards to previous weekly swings. After the direction is set, we look to only enter the market going’with the trend ‘.
While swing traders will most likely apply several indicators in an attempt to ascertain when the short-term swing is occurring, I like to utilize mathematically calculated’turn dates’offering the date as to when these swings are likely to occur. Once that is known, we simply allow the market to ensure the swing which signals the trade entry.