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Learning how to capitalize on the trend in trading

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Introduction

The price of securities play a significant role in the volumes traded in any security market. Prices always move up and down in response to market reactions. One sure way of making a fortune is learning how to predict and follow trends. Chartists make use of price charts as their prime tools to track historical prices which they in turn use to accurately project the path prices are likely to take heading into the future. Technical analysis is simply defined as the process of analyzing past price patterns to enable an intelligent projection of future price movement. As opposed to technical analysis which determines the period to buy or sell a particular security, fundamental analysis on the other hand shows the security to be bought or sold.

 

Prediction of trends is considered by many as an art instead of a science. In its complexity technical analysis is indispensable as a trading tool used in analyzing trends.

 

Utilizing the trend

Success in any security market lies in the identification of trends and intelligently inculcating them in trading. While a few traders clearly identify opportunities and threats, most traders in the market follow the crowd. It is thus paramount to understand the trends so that you will not have to follow masses but you will always be making an informed decision in your trading. By sharing the same sentiments towards a given security traders give the instrument momentum. Identifying and predicting such price movements means that one can either make profit or avoid losses.

 

The path to be taken by security prices in future can be indicated by trends. When prices rise, one is to buy more securities so as to profit from the upward trend. On the other hand falling prices trigger traders to sell to avoid losses. Cases of price disagreements occur and during such moments, it is advisable that one holds their securities until a trend emerges.

 

As it is generally known in trading, timing plays a significant role. The skills of identifying when prices will rise or fall can create immense opportunities to a trader. This skill is however anchored on recognizing upward and downward trends.

 

Types of trends

There are different types of trends that are formed by price movements. These are:

 

Upward trends

In trading, price patterns can form a series of higher highs and higher lows. This is what is termed as an upward trend. To an amateur trader, an upward trend can simply be put as a rise in security prices. The strength of such a trend however is bolstered by high trading volumes.

 

Downward trends

As opposed to the upward trends, downward trends occur when prices attain a series of lower highs and lower lows. In technical analysis this trend signifies a bearish run or can also be interpreted as bulls losing steam. When positively correlated with volume movement this trend provokes security traders to sell in order to avoid losses.

 

Sideways trends

The market at times attains a series of highs that are measurably at the same price level. This can easily be seen as a point of indecision by the market traders.

 

Long-term trends

There are some price patterns that dominate the market for a considerably longer period of time mostly a week. Such price movements form trends called long-term trends. Plotted against time long term trends show a display of lower highs and lower lows as time progresses.

 

Intermediate trends

This is represented by daily candle sticks. Also called minor trends, intermediate trends are considered temporal and anchored on the fundamental factors of companies. These trends can easily be identified on a chart by their characteristic stepped fashion movement.

 

Short-term trends

Also dubbed us micro trends, the short-term trends are the pinnacle of market volatility. Compared with long-term and intermediate trends, short –term trends are considered to last the shortest period of time and are more sensitive to market information.

 

Trend trading therefore requires one to be able to clearly identify trend movement so as to know when to make a security instrument purchase or close a sell. A misinterpretation of trends is not only detrimental to a trader’s position but also a recipe for loss making.

UpTrend.jpg.40b4633c565f398e50b30f1c374a0b10.jpg

DownTrend.jpg.6ffd9f71c9ded810faafafade2a5a583.jpg

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