HFM information and reviews
HFM
96%
FXCC information and reviews
FXCC
92%
FxPro information and reviews
FxPro
89%
FBS information and reviews
FBS
88%
XM information and reviews
XM
86%
Exness information and reviews
Exness
86%

Trading 101: Trading with the Trend


Trading with the trend is favoured among traders as it allows them to make the most out of momentum in the markets. If you are new to trading, you can look at trading in the direction of the trend as a starting point. 

What is trading with the trend? 


Trading with the trend falls under technical analysis and uses indicators to determine the direction the market is moving in. By analysing past price movements and historical trends it could be possible for the trader to determine which way the market is moving. If you focus on trading with the trend, you will be trading with the dominant market direction.

Trades can either be made in the direction of a trend or counter to the trend. While countertrend, or mean reversion, trading can be very profitable it generally requires more experience.

It is important to always bear in mind that trading with the trend won’t be sustainable as the trend will always come to an end, sometimes trading with the trend may not be in your favour. 

In this guide, you will learn how to trade with the trend by determining what the trend is for a certain financial asset and how you can indicate when a trend could come to an end. 

Why is time frames important when trading the trend? 


When following price movements in long term investments of a financial asset, you will tend to analyse a term frame covering a long period compared to short term time frames. If you are an intraday trader you will prefer to use a shorter time frame. Time frames will really depend on your trading style and therefore you will need to determine this before you start to trade with the trend. 

How do you identify a trend? 


The reasoning behind trading the trend strategies is so that you are able to determine which the market is moving and exit your position before it reverses. In order to identify the trend you need to look at:

If the market value of a particular financial asset is increasing then this is known to traders as an uptrend. To trade an uptrend, normally you would open a long position in order to try and take advantage of the high price levels. Similarly, when a financial asset is depreciating in value it’s known as a downtrend, in this case, you would normally open a short position. If a price isn’t revealing high or low price levels this is then known as trading sideways.

Trading retracements using two moving averages


This is one of the simplest strategies around. All that’s required is two moving averages and an RSI. The chart below is a 4-hour candlestick chart of the GBP/USD currency pair with a 15 and 30-period moving average. The RSI is plotted below the price chart.

The strategy is very straightforward. For long trades, wait for the shorter moving average to cross above the longer moving average. Both averages should be heading higher and the price should be above the short moving average. Now, wait until the price falls below the short average but stays above the longer average. This is the setup. Before entering wait for the price to cross back above the shorter average and close above it. Finally, check that the RSI is above 50 and then enter a long position. You can hold the position until the price closes below the longer moving average, or you can exit if the price reaches an obvious resistance level like a previous high.

For short positions do the exact opposite and remember to check that the RSI is below 50 before entering a position. This strategy can be used on any time frame and in any market – but if you are day trading make sure there is enough time left in the day for the trend to continue. You can also use different combinations of moving averages if you find they fit the price action.


Trading with tests of the trendline

Once you have the trendline in place, wait for the price to move back towards it. Once it begins to do so you can zoom into a lower timeframe of 20-30% of the original timeframe. Now look for the price to touch or come very close to the trendline and then move away sharply. Ideally, it should reverse with a candle that’s bigger than the candles before it. Wait for the next candle to open and if it continues moving in the same direction you can enter a short position.

Your stop loss is the highest high of the last few candles and you can hold the short position until the price closes above the trendline. For long positions, you will be looking for a bullish reversal off the trendline and hold the trade until the price closes below the trendline.

Summary


These are just two of many strategies you can use to trade in the direction of a trend. Losses will generally be small, and you will have the momentum of the trend behind you, making for good risk-reward ratios. It’s important to only take clear, unambiguous setups when the market is decisively trending. If the market is choppy, be patient – a better trade will come along.

#source


RELATED

An Introduction to Precious Metals

Precious metals have been used as an investment option as well as a method to store wealth, with gold being the most commonly used. Today there are many ways to trade...

Everything you should know about mutual funds

A brief introduction to mutual funds and why you should invest in them, the risks, who should invest, their performance and the alternatives. Every year...

What is Forex and how to trade on it?

The term Forex - also known as foreign currency trading, currency exchange or by its acronym FX - refers to Foreign Exchange or to transactions between currencies...

A brief article on Investing in Silver CFDs

Gold and Silver are precious metals that has been known to man since the olden days. Investing in Silver and Gold also dates back to prehistoric times...

Guide To Choosing A Broker In 2023

Choosing a reliable broker is an important step in the career of a successful trader. It is the broker, being the intermediary between you and the market...

What is a cryptocurrency wallet and how does it work?

To securely store the crypto investments, traders will need a cryptocurrency wallet. Cryptocurrencies are changing the world. They allow for decentralised...

How to trade smart during the coronavirus outbreak

You are more likely to panic when your investments drop and quickly sell out your assets, however, this is not the best way to react when the markets go down...

Choosing a trading instrument: how to trade currency pairs

Early on the path to becoming a trader, every beginner must determine what to trade and how. This choice should be made based on the desired goals...

What Financial Markets Are and Why They are Important

When we talk about stocks, currencies, bonds and cryptocurrencies, we may not think that all of these assets relate to particular financial markets. And what is a financial market, anyway?

How to Trade During the US Presidential Election?

Unless you've been hiding under a rock for the past year, you've probably heard, read, or participated in some heated discussions about the US presidential race...

3 Common Trading Mistakes that can Affect your Trading Plan

How long does it take to profit in online trading? Check out this article to see 3 common mistakes made by traders that may also be affecting your trades!

Crypto rading for Beginners: Best Strategies and Patterns

Today, there are more than 19,000 cryptocurrencies in existence and counting. On the one hand, crypto trading opens up huge opportunities. On the other hand, such a wide variety can...

How to make money on Forex

Are you eager to make some profits on Forex? Get ready for some valuable insights. Ready for your Forex journey?

What Are Meme Coins?

The cryptocurrency community has a ceaseless admiration for memes and pop culture. From its inception, meme coins have seen exponential growth in the crypto space...

How to Effectively Assess Your Forex Trading Performance

In the fast-paced world of Forex trading, constant growth and adaptation are essential. This not only demands a thorough understanding of the market dynamics but also necessitates regular assessment of one's trading performance...

Demystifying Stock Exchanges: The Heart of Financial Markets

Understanding the inner workings of stock exchanges is crucial for traders and investors. These financial powerhouses are more than just platforms for trading...

How to trade Forex: fundamental insights

The world of trading is diverse. There is a multitude of assets for investments: you can start trading commodities and try your chances with CFDs, or you can...

What are silver investments?

Silver investments are precious metals assets characterized by their availability and their potential to expand and diversify the investor's portfolio. There are many options...

Crypto and NFTs: The New Age of Art

Crypto and NFT art can be an even more promising pair for the future of art as a whole. Fiat currencies and art have both been around for a long time. We are equally...

How To Set Financial Goals In A Crisis

Clearly setting goals is an important step on the road to financial success. They, unlike abstract desires, will definitely work. At all times, you need to be serious and conscious about this question...

Vantage information and reviews
Vantage
85%
FP Markets information and reviews
FP Markets
81%
IronFX information and reviews
IronFX
77%
T4Trade information and reviews
T4Trade
76%
Just2Trade information and reviews
Just2Trade
76%
FXNovus information and reviews
FXNovus
75%

© 2006-2025 Forex-Ratings.com

The usage of this website constitutes acceptance of the following legal information.
Any contracts of financial instruments offered to conclude bear high risks and may result in the full loss of the deposited funds. Prior to making transactions one should get acquainted with the risks to which they relate. All the information featured on the website (reviews, brokers' news, comments, analysis, quotes, forecasts or other information materials provided by Forex Ratings, as well as information provided by the partners), including graphical information about the forex companies, brokers and dealing desks, is intended solely for informational purposes, is not a means of advertising them, and doesn't imply direct instructions for investing. Forex Ratings shall not be liable for any loss, including unlimited loss of funds, which may arise directly or indirectly from the usage of this information. The editorial staff of the website does not bear any responsibility whatsoever for the content of the comments or reviews made by the site users about the forex companies. The entire responsibility for the contents rests with the commentators. Reprint of the materials is available only with the permission of the editorial staff.
We use cookies to improve your experience and to make your stay with us more comfortable. By using Forex-Ratings.com website you agree to the cookies policy.