When you trade with the trend, you’re trading with the flow. When the trend is up, you don’t want to look for short entries because buying might result in much smoother trades. Plenty of rookie traders can’t stop trying to predict reversal even when facing a very obvious trend. As a result, they end up burning their fingers going counter trend when they could have made a significant amount of money if they only joined the trend.
Even if you’re a trader who doesn’t follow trends, you should integrate the concept of trading with the trend to your conventional trading approach. This is because knowing as to which side of the market is stronger and where the price is going is an essential trading skill.
Different market phases
A trading market can do one of the following things
- Go up
- Go down
- Move sideways
Although how slow, fast and long individual periods last change all the time for online trading Australia, the price can only do one of the three things.
For rookie traders to be able to correctly read trend direction, price action and trends here are some of the most effective ways to recognize the direction of a trend.
This is the most common and simplest way Rakuten traders use to identify the direction of a trend. You can read and analyze trading charts in three ways.
The line graph
Plenty of traders only use candles and bars when it comes to observing charts thus forgetting about the line graph. This is a straightforward and useful tool that will allow you to look through all the noise and the clutter.
While the purpose of the candles and bars is to provide you with detailed information regarding what is happening on your charts, it will not necessarily help you in identifying the overall trend.
Head and shoulders vs. high and lows
High and lows are used to define all chart formations as well as market patterns. A head and shoulders pattern combined with highs and lows not only show transition but also describe the shifting power between buyers and sellers. Following the highs and lows will help you understand what the market is trying to say.
Highs and lows
This is usually everything you need to understand any price chart. During an uptrend, you will have higher highs since buyers are in the majority and are pushing the price higher. Similarly, lows are also higher since buyers continue to buy the dips earlier. On the other hand, lows are lower during a downtrend because the seller surplus moves price lower and highs are lower because the sellers are selling earlier and the buyers are not interested.
Channels and trend lines
Another way to identify the direction of a trend is through channels and trend lines. They can also help you understand range markets much better. Trend lines are mainly used to identify changes of established trends. For instance, when you have a strong trend and the trendline suddenly breaks it can signal the transition into a new trend.
During ranges, trendlines are ideal when it comes to finding breakout scenarios when price enters trending mode again. Trend lines can also be nicely combined with moving averages because they have complementary characteristics.
Undoubtedly being among the most popular trading tools, moving averages are great when it comes to identifying the market direction. But, there are a few things you should be aware of as a rookie trader when it comes to analyzing the direction of a trend using moving averages.
A slow moving average might help you ride trends longer when it filters out all the noise or provide signals too late.
A small or fast moving average can get you out early when the trend is about to change, or it might give you a lot of false and early signals since it reacts to son to minor price movements.
Therefore it is safe to say that the length of a moving average can profoundly impact when you get a signal when trading markets turn.
January 10, 2019