How do we use a trend?
What is a trend - The direction the market moves is called a trend. This can be either sideways, up or a downward movement. We are looking to make money by buying when the trend is up and selling when it's down.
When we look at a price chart we see a zigzag pattern of peaks and troughs. These peaks and troughs are created by the supply and demand in the market.
By looking at the price chart we can see if the peaks and troughs are rising. If they are we have an up trend. When we have an up trend we can open a buy trade let the rising market make us a profit.
When we are in a descending market the peak and troughs will keep getting lower. This is a downward trend and we profit can by selling the market and then letting the market continue to fall.
A sideways trend is when the market moves sideways between an upper and lower price band. The market will move up and down between these upper and lower levels creating a sideways movement. Trading systems that follow a trend do not work well in sideways trading. However a trader may adopt a sideways trending strategy to buy (lower) and sell (upper) trades at the upper and lower price bands.
Once we understand that we can profit from a trend. We need to understand that different trends can develop in different time frames.
In technical trading there are 3 time scales used with trends. There is the major trend which lasts over 6 months. An intermediate trend which is between 3 weeks and 6 months and lastly there is the near term trend which is under 3 weeks.
We must remember that in a major trend we have pull backs and these pull backs also constitute a trend. This is still a trend it is just in a smaller time frame. So the trend we are trading is dependant on the time frame we trade.
When we hear the news or use our favourite financial website they may talk about a trend. To be able to profit from this information we need to know what time scale they are talking about. Otherwise the information they are providing will not help us.
What is a trend - The direction the market moves is called a trend. This can be either sideways, up or a downward movement. We are looking to make money by buying when the trend is up and selling when it's down.
When we look at a price chart we see a zigzag pattern of peaks and troughs. These peaks and troughs are created by the supply and demand in the market.
By looking at the price chart we can see if the peaks and troughs are rising. If they are we have an up trend. When we have an up trend we can open a buy trade let the rising market make us a profit.
When we are in a descending market the peak and troughs will keep getting lower. This is a downward trend and we profit can by selling the market and then letting the market continue to fall.
A sideways trend is when the market moves sideways between an upper and lower price band. The market will move up and down between these upper and lower levels creating a sideways movement. Trading systems that follow a trend do not work well in sideways trading. However a trader may adopt a sideways trending strategy to buy (lower) and sell (upper) trades at the upper and lower price bands.
Once we understand that we can profit from a trend. We need to understand that different trends can develop in different time frames.
In technical trading there are 3 time scales used with trends. There is the major trend which lasts over 6 months. An intermediate trend which is between 3 weeks and 6 months and lastly there is the near term trend which is under 3 weeks.
We must remember that in a major trend we have pull backs and these pull backs also constitute a trend. This is still a trend it is just in a smaller time frame. So the trend we are trading is dependant on the time frame we trade.
When we hear the news or use our favourite financial website they may talk about a trend. To be able to profit from this information we need to know what time scale they are talking about. Otherwise the information they are providing will not help us.
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