Trend Trading is all about being able to read market sentiment and the balance between bulls and bears. Understanding why a trend is gaining or losing momentum is very important if you are trying to make decisions about whether support and resistance levels are likely to hold or break down, whether a trend will continue, or if a reversal can be anticipated.
The trading tips we are sharing are not a standalone system, but they should build as a cornerstone of any trend trading methodology. The structure of a trends movements consists of alternating spikes (advances) and pullbacks (corrections), which respectively end with the Highs and Lows. Highs and Lows can be called trend points and without a clear definition and understanding of every stage of the movements, often enough confusion could arise, especially for inexperienced traders.
Let’s start with some basic terms:
- Trends – this is the direction of the predominant movement of the price of a currency pair. Trends are ascending (bullish), descending (bearish) and lateral (flat). With an uptrend, the next High and Low in the chart should be higher than the previous one, with a downtrend, the next Low and High in the chart should be lower than the previous ones.
- Flat Market – is a lateral movement in which new Highs and Lows do not go beyond the previous High or Low.
- Impulse – move in the direction of the trend.
- Correction – the movement of prices in the opposite direction to the trend. In this case, the correction should not exceed the previous High or Low, except for a false breakdown situation.
- Trend Reversal– is a change in the direction of the prevailing price movement.
The whole goal of trend trading is to identify when a trend begins so you can capture gains within that investments trend. Technical Analysis is often used in conjunction to assist traders on when to take advantage of the current trend in a particular stock to help improve their returns. Day trading involves specifics that are different than the typical trend trading investment strategies. (we will visit this subject of day trading, the pros and cons, again later in another blog...)
The difference between the price target and the entry price is approximately the reward of the trade. The difference between the entry price and the stop out price is the approximately your risk. New investors, when you’re determining whether it’s worthwhile to enter into a trade, consider using a 2-to-1 as a minimum reward risk ratio. Your potential profit should be at least twice as much as your potential loss. If the ratio is higher than that, the trade is considered to be better; if it’s lower it is considered to be worse.
Through our 25+ years experience in trading, we have discovered that when it comes to identifying the trend of the market, there’s no magic secret. Becoming a successful trader takes time and dedication. However, learning professional grade investing skills that Bullstobears.com teaches its members can have a life changing effects. If you're ready to put in the work and learn, we can show you how you can make money consistently in any market, whether it's going up (bullish), down (bearish) or sideways (flat). Choosing the right trading method for you comes first. Perfecting it is the art of and trader. And mentoring you to becoming a successful trading artist is our lifelong endeavor.
The Bottom Line: When Trend Trading or Swing Trading, a good trader can stack the odds of making a successful trade in his or her favor. As we mentioned previously trading is an art, which means that it is both craft and science and requires a lot of practice to develop consistency and profitability trading stocks.
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Till next time… Happy Trading from Bulls To Bears!
