What is trend trading?
Trend trading or trend following is a trading strategy that involves identifying the direction of a market trend in the financial markets and then buying or selling assets following that trend.
Trend traders tend to use technical analysis. They will look for patterns in price movements and analyze charts to establish areas of support and resistance.
Once a trend has been recognized, trend traders tend to enter a trade in the direction of that trend and the goal is to ride the trend for as long as possible. As a trend trader, you may enter into a long position when the price is trending upward or a short position when the price is trending downward.
The beauty of trend trading is that you can take day trading and hold it as a swing trader for longer period if the market respects your trend. Simply this strategy has higher risk-reward ratio.
How to identify trend?
There are two types of trend internal and external for example, if gold is bullish in 1 day or 4 hour timeframe there’s a chance that gold will be bearish in 1 hour or 15 minute timeframe because of market retracement to its previous support in the bigger timeframe.
As you can see this is a gold chart XAU/USD 4 hour timeframe and in this timeframe market structure is bullish but when we go to lower timeframe there’re both chance of the market may be bullish or bearish. Let’s see…
Still, the market is bullish in 1 hour timeframe but you can see recent retracement shows that market is retracing to its Higher low level. Now we can see 15 minute timeframe that must be bearish and that is internal trend while the market structure is bullish at higher timeframe and that is external trend.
Now we can trade bullish because of external 4 hour market structure is bullish while bearish because of internal 15 minute market structure is bearish.
If you like to trade for shorter period like day trading go for internal market structure and if you looking for swing trade then wait until this internal structure also makes higher higher and breaking bearsih market structure.
How to take entry?
In the trending market, we look for entry at the retracement level but before entry we confirm some rules like Fibonacci golden ratio, Oder block “OB”, break of structure “BOS”, fare value gap “FVG”, candlestick pattern, and even volume for confirm entry.
Before You start!
Backtesting
Before you start live trading, follow some steps…
- Learn some basic charts, technical analysis, different financial instruments, candles, price action, etc.
- Practice on the chart.
- Backtest your strategy around 200-300 trades
- Practice on the demo account this help you in improving your mindset and psychology.
- Now you’re able to trade live with little capital.
- If you don’t have capital connect with prop funds
This is about 6 month process, trading is a high-risk business make sure only invest money that you don’t need in any emergency.
Risk management
Entry, stoploss “SL” and takeprofit “TP” are most important parts of execution in trading. Risk only 1-2% of your capital in each trade and stoploss is the lifeline of trader.
Tools required
- Tradingview for live chart analysis and backtesting
- Ctrader or MT5 for live trading and demo account
- Brokerage for depositing and withdrawing money
Wrap Up
Trend trading is the most profitable strategy but it depends how you can trade and manage your positions. Give time to trading practice on chart stick to 1 strategy and 1 pair in the beginning. If you can get the statistical edge on market structure and price action these are enough to make your living.
