The Trend Strategy
Trend Trading - text
Ok so what is trend
A trend is the general direction that that the price of an instrument is moving in. This direction can either be to the upside, the downside or moving in a sideway direction. Letâ€™s look at how to identify up trends and downtrends
An uptrend is identified when we see a series of higher highs and higher lows on the instrument we are trading
Looking at this chart we see that we have FOUR instances of higher highs and higher lows signifying a strong upward trend.
A downtrend is identified when we see lower highs and lower lows
Looking at this chart we see 4 lower highs and 4 lower lows signifying a strong downward trend
Ok so what are the characteristics of a trending market.
We have established that our chart is trending upwards but we also see numerous instances where there was a temporary pull back or retracement and following these pull backs the market continued in its upward momentum
We can see here how the previous swings points (the green arrows) that were created when the market retraced downwards correspond to the level where the market retraced back upwards (at the red arrows). We see blue horizontal lines to signify the swing and retracement levels .The swing points are circled in green and the retracement points are circled in red and In additionÂ to these have addedÂ two diagonal trend lines which are touching off the swing and retracement levels
Â So what are our entry and exit points.
So on an uptrend we only buy on the Dips. Here are 3 possible entry points.Â You buy above the blue horizontal lines at these dips (the previous swing points)
We could buy at entry point 1 and ride the trend all the way taking in the pullbacks along the way.
This may or may not work out as you wonâ€™t know when the trend will endÂ and if you are using a trailing stop you will likely get stopped out at the first pullback
Alternatively we open new positions at the 3 entry points and exit each one (at clear signs of reversals) before opening up new positions at the reversal points being the dips
Notice the candlestick formations on the blue lines marked with the blue circles.
Buyers and sellers were feeling some indecision at these points half way up from entry pt 1 and entry pt 2. At entry point 3 we could see stronger momentum which would have encouraged us to hold on to the trade a bit longer before the indecision occurred.
Exiting at these points is a more conservative approach and still would have still yielded a 200 and two 250 pip profits on the 3 tradesÂ