Identifying Trends When Trading
Identifying trends is a basic step in learning to trade forex. By analyzing the trends, you can make an informed decision when it’s time to buy or sell. There are many ways to establish the direction of a trend, and each technique can be useful. So while there is no right or wrong method, there are many paths that can lead you to the best decision. Here are some of the steps you can use to prepare a plan for trading with the trend.
Identifying the Price
An easy way to get started with watching trends is to see if the price you are watching is creating higher highs or if it’s bringing higher lows. If the price is climbing upwards, then the price is establishing higher highs. This is when the trend is considered to be up. On the other hand, if the price is sliding down into lower lows, the price of this currency group could be in the midst of a downtrend. When a trend and direction has been established, you can then decide how you will enter the market. This is where a breakout might work for you. If you take into account the meaning of an uptrend is creating higher highs along with higher lows, you can plan an entry point as the trend continues. Seemingly, the currency pair will reach an even higher high.
How it Works
To buy with the trend, you can set your entry higher than the current value. When and if the price breaks higher than the set value, you will automatically enter the trade. This means that once you set your entry level, you do not have to sit there watching. You will automatically enter the position you set. Your order will be triggered if it coincides with market movement. On the other hand, if the trading never reaches that level, you can delete the order.
Managing an Order
Keep in mind that trends are finite. They will always reach their end. If you are monitoring an uptrend, you might be tempted to put your stops under the swing low, or higher low. If the price pops beneath this set value, it could mean that the trend is coming to an end. At that point, you can place a stop order to exit your position. When going with a trend plan for trading, it’s vital to know when and where to take your profits. The best advice is to keep the risk on your orders to a minimum. By this we mean to avoid the mistake of trying to win “big time” by putting in too many orders. Remember that the trend can turn and leave you hanging.
Once you learn to analyze the trends and go with the flow, always remember that trends can get bored with always going in the same direction. Before your eyes, they can quickly turn on you. If you’re not careful, you can get stopped from a trade as quickly as you entered it. No one wants a trade lacking momentum!