If you are a beginner level trader you will probably have read a lot about trends and trading them.
However, when you go to look at the charts that represent these trends, it is hard to make any sense of them at all. Too many lines going in too many directions without any rhyme or reason, how can one make sense of it all?
If you ask yourself this question often, this blog is for you. We are not making a never ending list here. We believe in keeping it short and sweet and most of all, incredibly helpful.
Take a look at our top 3 tips for identifying and trading trends.
Tip #1- Look for at least two highs and lows in one direction
This means that when you’re looking at a chart and trying to see if it is solid uptrend, you need to see the highs and lows both going higher. If once the price closes high, that is not enough information to start buying.
Wait for that high to be reached again, but it doesn’t end there. You need the lows to be higher too. Remember that an uptrend does not mean that the price goes to a very high point and then returns to the same low. It will only really be considered a signal for a solid uptrend if the lows are higher too.
Same goes for downtrends. You will be looking for at lower highs and lower lows.
Tip #2- Use the right tools to help you analyze
Trading is mainly the trader’s own analysis of course. The biggest tool a trader has is their brain. Having said that, there are some things you can use to aid your process.
For example, the Zigzag tool on the MetaTrader 4 is great to be able to see a trend clearly.
For beginners it can be quite tricky to make sense of the very overwhelming information they see on the charts. This is what usually causes them to get flustered and then make rash decisions.
The zigzag tool marks out clearly all the highs and lows thus making it incredibly easy for you to spot higher highs and lows and identify a trend.
Similarly, using a good indicator (that you can also find on MetaTrader 4) will help you analyze too. For example, the ATR or Average True Range will show you the average range of the candles and in the bigger picture the trend.
Using this you can devise a strategy such as aiming for the middle of the range to play it safe or any other. What it achieves for the trader is clarity. And on a chart that can seem incomprehensible to a beginner level trader, this is a great blessing.
Tip #3- Decide your entry point based on a solid signal
If you were looking to buy and the trend seems to be going upwards, that is not enough information for you to become part of that trend at any given point.
You need a solid point of entry so you can make the most profit.
The thing to do here is to look for something solid like an established support or resistance level, a candlestick pattern marking reversal, or a Fibonacci retracement etc. Set a clear signal for yourself and enter only when you are able to spot it.
You need these signals basically because if there is going to be reversal you want to ride the wave in the other direction. Getting in right at the start of a reversal or retracement means that your entry and exit points will have a bigger difference, and therefore make you the most profit.
This is not all the information you will ever need on trading trends, we realize. It is, however, a good place to start.
It should give you some notion of a strategy and then you can see where your experiences and the market take you from there. You will learn and unlearn a lot along the way but these are solid tips that are bound to stay relevant.
Everyone’s forex journey is different and experience is truly the best teacher but we hope you still found this somewhat useful.