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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.
When the trend is moving upwards we can see these zigzag patterns moving upwards. These peaks and troughs are showing the market is moving higher. This movement present a buying opportunity.
The reverse is also true of a down trend. If the peaks and troughs are continually moving lower we have a down trend. We can open a sell position and let the dropping market make money for us.
A sideways trend means the market is moving between two price points. For trend followers this can be frustrating as a sideways trend does not make them money. However once a sideways trend has been identified, selling (upper) and buying (lower) at the upper and lower range can produce profits.
We know that a trend either moves up, down or sideways and if we trade with the trend we will make a profit. However we must now understand that a trend has different time scales.
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.
The type of trend we are trading depends on the time frame we are using. We may have an up trend in the monthly chart but a down trend in the daily chart. It is essential that we understand the time frame and the trend we are trading.
When we use news feeds or financial websites for information if they talk about a trend we need to know the time scale they are talking about. If we do not know what the time scale is we cannot use the information. Once we know the time scale we can understand and profit from their information.
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.
When the trend is moving upwards we can see these zigzag patterns moving upwards. These peaks and troughs are showing the market is moving higher. This movement present a buying opportunity.
The reverse is also true of a down trend. If the peaks and troughs are continually moving lower we have a down trend. We can open a sell position and let the dropping market make money for us.
A sideways trend means the market is moving between two price points. For trend followers this can be frustrating as a sideways trend does not make them money. However once a sideways trend has been identified, selling (upper) and buying (lower) at the upper and lower range can produce profits.
We know that a trend either moves up, down or sideways and if we trade with the trend we will make a profit. However we must now understand that a trend has different time scales.
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.
The type of trend we are trading depends on the time frame we are using. We may have an up trend in the monthly chart but a down trend in the daily chart. It is essential that we understand the time frame and the trend we are trading.
When we use news feeds or financial websites for information if they talk about a trend we need to know the time scale they are talking about. If we do not know what the time scale is we cannot use the information. Once we know the time scale we can understand and profit from their information.
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