Trend trading is a kind of marketing trading strategy which attempts to gain profits. This is done by analyzing the ongoing trend using trending indicators in a particular direction. A trend is when a stock's price moves in a direction, such as up or down.
Published on 03 February 2023
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The two positions in trend trading are:
Long position-When the stock is trending upwards, it is called a long position.
Short position: When the stock is trending downwards, it is called a short position.
Trend trading helps investors make profits, but only with the help of trending indicators. Trending indicators are a part of a technical trader's strategy. In this article, we will learn about the top 5 trend indicators.
What is Trend Trading?
Trend trading is used to make profits using various trend indicators that help identify the direction of the market momentum. Traders use their analytical skills to follow ongoing trends to make profits and avoid losses. For instance, they will buy securities before prices rise and sell them before prices go down.
Trend traders apply proper risk management strategies before investing to minimize losses. These traders do not believe in predicting or forecasting a trend; instead, they believe in keeping track of the ongoing trend and eyeing any emerging trends in the market.
Type of Trends
Trend traders use specific strategies to help them exit the market when they think it is reversing to avoid losses. There are three types of trends in trading-
Uptrend
Uptrend is when the prices start increasing. However, trend traders usually identify this trend by observing that the trend has both higher highs and higher lows. For instance, a share price increases by Rs. 30, falls by Rs. 20, rises by Rs.35, and falls again by Rs.25. The position associated with this trend is the long position.
Downtrend
In a downtrend, the market price starts decreasing. Trend traders identify a downtrend by the price reaching the lowest possible level. For instance, there is a share price decrease by Rs.60, then an increase by Rs.30, and again a fall by Rs.50 before rising by Rs. 20. The position associated with this trend is a short position.
Sideways trend
There are times when the prices are static; they neither reach higher nor lower price points. This is a sideways trend. People involved in trend trading generally avoid this trend.
Top 5 Trend Indicators
The following indicators are the best trend indicators
The Bollinger Band Indicator
This is one of the most used trend indicators. It is primarily famous among retail traders. This trend indicator mainly has two uses-
Help in measuring market volatility
Show traders the trending conditions
The Bollinger band indicator has three bands that follow the assets' price. The edges indicate the assets' price and reflect its volatility. The middle band serves as a moving average.
The Moving Average Convergence Divergence Indicator
It is also known as the MACD indicator and is one of the top indicators. MACD indicator helps in measuring both trend and momentum. It is better not to use the MACD indicator as a standalone indicator and integrate it with other technical indicators. The primary use of MACD indicator is-
Finding the average price of a security over a specific period
These moving averages help in trend analysis as well. For instance, when the price is above the moving average, there is an uptrend. On the other hand, when the price is below the moving average, there is a downtrend.
The Relative Strength Index Indicator
This is another trend indicator that helps measure excessive market sentiment for trending stocks. The average profits and losses are observed for specific periods, determining if the price movements are positive or negative. The RSI indicator suggests if the assets are overbought or oversold. A score of 70/100 means that the asset has been overbought and a score below 30 indicates the asset has been oversold.
The On Balance Volume Indicator
They are known as the OBV trend indicator, which helps in measuring volume trends. Volume is a complementary measure of confirming price by determining a low or high number of trades.
Simple Moving Average
It is also known as Daily Moving Average. The main objective of this trend indicator is to hide the short-term volatility and give an idea to the traders of an emerging trend.
The investor can make informed choices by using this trend indicator.
Conclusion
Now that you're well-versed in trend trading and know the various trend indicators, you can easily apply them to your trades. However, you must master these strategies before implementing them. You can always look for more indicators that will help you than others. Also, it's essential to know if you're looking for a short-term or a long-term investment. Depending on that, you can easily apply these trend indicators.
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Everything You Need to Know About Volume Indicator
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Diwali, the festival of lights, is one of the most prominent Indian festivals. It marks the beginning of the Hindu accounting year called Samvat. Most people consider Diwali an auspicious occasion to make financial investments because of the blessings of Goddess Laxmi.
Day trading, also known as intraday trading, is the process of buying and selling securities in the stock market on the same day through a margin account. The objective of day trading online is to lock in profits from the movement of stock prices.
Everything You Need to Know About Volume Indicator
While investing in the stock markets, there are several things that you need to look at. One such factor is the volume of a specific stock being traded at a given point in time. In the stock market, many trade exchanges take place every day. While some investors buy and sell their stocks on the same day, others hold them for a longer period.
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