Trend trading is one of the available trading styles. This style attempts to get profit from the analysis of a certain asset momentum in a single direction. Usually when the price goes to a particular direction for a period of time that is a trend.
Most of the time, trend traders seek for a long position if there is a certain asset trend upward or an uptrend. That is when there are only higher swing lows and highs.
On the other hand, traders seek a short position during a trending lower asset or a downtrend. That is when there are lower swing highs and lows.
The Details Definition of a Trend Trading
This strategy assumes that the current trend of an asset will make its price head in the same direction. Within this strategy, traders usually utilize stop loss or profit target in order to lock profits as well as avoid the big loss from a trend reversal.
Various traders like to use trend trading, they range from short-term, intermediate-term, up to long term traders.
Besides, with this strategy, traders usually also place price action accompanied by the other technical tools to know the trend direction. With price action, traders have to see the price movement within their charts.
During an uptrend, they will see the price to move higher than the recent highs. Meanwhile, the price drops usually stay above the prior swing lows. This shows that even when the price is moving high and lows, the common trajectory is still up. The same concept also applied to the downtrend.
Trend Trading Strategies
We have various different trend trading strategies. Each of the strategies uses various indicators and price action methods. Here are the strategies.
Moving Averages
These strategies require traders to enter a long position if the short term moving average crosses higher than the long term average. Traders can enter a short position if the short term moving average crosses lower than the long term moving average.
Momentum Indicators
There are various momentum indicators and strategies. The example of momentum indicators in trend trading might involve looking for an uptrend. After that, traders can use a relative strength index (RSI) to know when and where to enter and exit.
Chart Patterns
Usually, trend traders will use chart patterns, like flags or triangles. Those patterns indicate the potential trend to continue.
