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%
NordFX information and reviews
NordFX
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

Everything You Need to Know About Margin Trading

Margin trading is a popular method used by traders all over the world. It can offer attractive opportunities, but as with any form of trading there are no guarantees and the level of risk must be taken...

Why every trader needs a trading strategy

A trader without a trading strategy (TS) is like a driver with no map. Whatever your strategy is, it will help you deal with the chaos happening in the markets. This article...

Slang and financial markets: animals in trading

Animals and the money: Octa broker gathered the most popular slang words in financial markets.

Forex Trading Robots: Your Ultimate Guide to Forex Auto Trading

Nowadays, there are numerous trading approaches and systems both for trading on forex and CFD contracts. And since it all can be transformed into a computer algorithm, the number of automated...

Seven Tips for Trading Gold Forex (XAU/USD)

Trading gold forex (XAU/USD) has become more popular as forex, silver traders or metal traders look for positions that have the potential to go against inflation or market volatility...

Unpacking Demo Trading Accounts: Your Comprehensive Guide

Venturing into the world of trading can feel like navigating a maze, especially when you're diving into complex domains like forex, precious metals, or cryptocurrencies...

The Evolution and Significance of Forex Trading

Ever since its establishment in the 1970s, forex trading has seen a rapid transformation. One of the chief driving forces behind its monumental growth has been the explosion of technology, which enabled the creation of online trading platforms...

The core concept of money management

Risk management, also known as money management, refers to a number of trading techniques employed to lessen risk exposure. Being affected by various factors...

How to Invest in Stocks: A Beginner's Guide for Getting Started

A successful voyage of the Dutch East India Company ships brought great profits, but statistically, one sailing ship in three returned home - the others could not withstand storms and pirate raids...

A Comprehensive Guide On How To Trade USD/CAD Currency Pair

The USD/CAD currency pair represents the relationship between the US dollar and the Canadian dollar and is a favored choice among currency traders due to its active trading hours...

Understanding Financial Market News and Trends

There are many ways to trade the financial markets, all of which require a good understanding of financial market news and trends. This requires a combination of knowledge...

LegacyFX: Commodity trading benefits

CFD Trading is a derivative financial instrument, and it is an abbreviation for "Contract for Difference". CFDs are of interest to traders who want to boost the amount and quality of their...

What is Notional Volume and Why Does It Matter

Notional volume is often used as a measurement when valuing a derivative contract. There are also various other ways derivative contracts can be valued...

How to place your first trade in Forex?

Forex is a unique financial platform. It gives traders an opportunity for both incredible profit and equally incredible loss. Thousands of people every day decide...

How to become a Forex trader

While Forex is an exciting and lucrative financial market, many traders face difficulties when trying to make steady profits and grow...

Black Friday and How it Affects Markets

Black Friday can be best captured by images of customers sleeping in tents outside stores or running in hordes to enter their closest shopping mall, while...

Swap, Spread and Everything You Need to Know about Forex Market Commissions

It comes as a surprise for many newbies to see a negative balance when they open their first trade, although the price has not moved. It comes to...

How to start trading in Forex for free: first steps

A simple web search query "how to trade in Forex" will yield dozens of on-site and online classes for beginners and traders of various experiences...

Trading on Forex - A Primary Source of Income

There are a lot of discussions about trading within the boundlessness of the Internet, both in conventional businesses and state-financed organizations...

Investing In Artificial Intelligence (AI): A Beginner’s Guide

Investing in artificial intelligence (AI) has become an increasingly popular choice for investors as the technology continues to reshape industries and drive innovation...

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%
Exness information and reviews
Exness
76%
Just2Trade information and reviews
Just2Trade
76%

© 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.