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 peaks and troughs are getting higher and higher we are in an up trend, and as long as zigzags keep getting higher the trend will continue. When this happens we can set up a buy position and let the rising market make us money.
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.
When the market is moving sideways it is called trend-less. It will move between two points in the market and it will stay between these points until a trend develops. This can be a difficult time for a trend following system as it can lose money. A trader can use a sideways trading system during these times and buy (bottom) and sell (top) at the top and bottom of the trading range.
When we know how a trend moves we can use this information to make us money. However we need to understand that different time frames can produce different trends at the same time.
There are 3 time frames for a trend. These are near term trend, intermediate trend and major trend. A near term trend will last up to 3 weeks. An intermediate trend will last from 3 weeks to 6 months and major trend is over 6 months.
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 peaks and troughs are getting higher and higher we are in an up trend, and as long as zigzags keep getting higher the trend will continue. When this happens we can set up a buy position and let the rising market make us money.
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.
When the market is moving sideways it is called trend-less. It will move between two points in the market and it will stay between these points until a trend develops. This can be a difficult time for a trend following system as it can lose money. A trader can use a sideways trading system during these times and buy (bottom) and sell (top) at the top and bottom of the trading range.
When we know how a trend moves we can use this information to make us money. However we need to understand that different time frames can produce different trends at the same time.
There are 3 time frames for a trend. These are near term trend, intermediate trend and major trend. A near term trend will last up to 3 weeks. An intermediate trend will last from 3 weeks to 6 months and major trend is over 6 months.
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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