The trend is your friend, an old saying popular among professional traders. However, it isn’t easy for beginners to understand what it is and how to identify it on the chart.
What is a trend?
A trend is a regularly repeated movement in the price of an asset in a specific direction. When the price moves up, it is called an Uptrend. On the other hand, when the price moves down, it is called a Downtrend.
On a broader scope, an uptrend is characterized by a continuous price swing between higher highs and higher lows. Price goes above recent highs, and when it drops, it stays above previous lows. Although the price swings back and forth between highs and lows, its overall course is an ascending waveform.
Conversely, the price teeters between lower highs and lower lows in a downtrend. It goes below recent lows in succession, with a short rise immediately following each trough. These short rises stay below the previous highs. In a downtrend, the broad trajectory of price is down.
It is important to note that there are occasions when you will find lower highs and lower lows in an uptrend and vice-versa. It is a period of price consolidation where in price ranges between the support and resistance levels.
In addition, your time frame choice largely determines the easiness of recognizing a trend. You can identify trends more quickly when you use higher timeframes, as the consolidation areas are narrower. For example, a 10-minute chart will show you a clearer trend than a 5-minute chart.
Trading methods with the trend on Binomo
Trading is not a simple undertaking, even when trading in a trend. A lot of traders often get stopped when a trend suddenly reverses. They usually make the mistake of jumping on a trend as soon as they identify it. It takes a lot more than that to be a good trader.
In this section, you will learn how to find a good trading opportunity in a trend with pinpoint accuracy using your Binomo account.
Trading with the breakouts
In the chart, you can see lower highs and lower lows forming, indicating that the asset is in a downtrend. The yellow trend line is proof of that.
Note the two horizontal red lines drawn at the support lines. You can see that sometimes the price reaches them. That’s about the area to enter the trade.
But before you do so, you need confirmation with a bearish engulfing candlestick, as seen at both support lines. Your entry point is when the first bearish candlestick goes below the support level (the red line).
Trade when the price bounces back
In the chart, the asset is in a downtrend. A purple trendline is drawn across the lower highs and a yellow support line at the 1.25100 price level. When the price meets their intersection point, it sharply goes down immediately. It is a strong signal to make a sell order, as the price will continue falling below the support line.
The asset in the following chart is in an uptrend. In point 1, the price breaks the resistance line and then returns to the former level, which now acts as support. After the first bullish candlestick, a bullish pin bar (ringed in yellow) is formed, simultaneously testing the yellow support line and the purple trendline. It is a good entry opportunity to make a buy order.
Similarly, in point 2, the bullish candlestick touches the purple trend line and the yellow support line. It indicates that the uptrend will continue. In like manner, it is a good entry point for a buy position.
Conclusion
The trend trading tricks described above are time-tested and have proven to be effective across various trending markets and multiple time frames. They give you the following:
- Signals to time your market entry.
- Accurate information about the buying/selling pressure happening at the support and resistance levels
- Vital information to avoid false breakouts. The pin bar and engulfing candles described above are confirmations of breakouts.
Understanding the market and price direction is a valuable skill every trader should have. Regular practice is the way to acquire this skill. Practice on a Binomo demo account and use this knowledge when choosing a trading strategy. Remember that there is always a risk of losing money because the market is volatile.
