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As a trader, you've probably heard that the less complex your trading strategy is, the more likely your trades will be the best, and you may have also heard the phrase that "the trend is your friend."
In today's blog, we are going to talk in detail about this 'trend trading'.

Image by storyset on Freepik | Edited on Canva.

Let's start with the very basics

What is a trend in trading?

Remove the word 'trading' from the above question and ask this question to Google. The first result of Wikipedia website says that "A fad, trend, or craze is a form of collective behavior that develops within a culture, a generation or social group in which a group of people enthusiastically follow an impulse for a short period."

We can see Wikipedia's answer to this question by linking it to many routine things in our real life, the most common of which in today's time is the trend of any video, news, tweet, or fashion.

Now understand this answer by keeping it in the financial market as it is.

A trend is a form of collective behavior that develops within the market participants (Buyers and Sellers) in which a group of market participants enthusiastically follow an impulse (directional move) for a short period. Understanding a trend and trading in its direction is called trend trading.
So, Trend is the direction in which prices are moving.

If anyone has ever explained a trend to you in a better way than this, then tell me!

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What are the types of market trends?

There are mainly 3 types of trends.

- An uptrend in which prices rise, and is also known as a bullish trend.

- 'Downtrend' in which prices continue to fall, and is also known as a bearish trend.

- 'Sideways Trend' in which price moves in a range, and is also known as Horizontal Trend or consolidation.

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How to identify a trend?

Traders use both 'Price Action' and other 'Technical Tools' (Indicators) to determine the direction of a trend and when it may change, But here I believe in the KISS rule, which says, "Keep it simple, stupid!" So, the most simplest and popular indicator to identify a trend for beginners is the 'moving average'.

But before that, you have to determine which class of trader you are.

• An Intraday trader: Who mostly settles all its trades within 1 trading day.
• A Swing trader: Who tries to profit from price movements by keeping a trade open for a few days or weeks.
• A Positional trader: who holds their positions for an extended period, typically from several weeks to months or even years.

Before understanding how to identify a trend, it is important to determine the type of trader because even in an uptrend going on in the daily time frame, an intraday trader can make profits by identifying and trading a downtrend in a smaller time frame.
This means that the time frame plays an important role in determining the trend. Typically, when we are analyzing long-term investments, the longer time frame dominates the shorter time frame. However, for intraday purposes, shorter time frames become more valuable.

Now to identify a trend As earlier I said, you can use both 'Price Action' and other 'Technical Tools' (Indicators) to determine the direction of a trend and when it may change. The most simplest and popular indicator to identify a trend for beginners is the 'moving average'.
An example of which you can see in the image below.
Image by TradingView | EUR/USD chart 5-min time frame.

In the above chart, you can see a blue curved line placed on price action. This blue line is the 15-day simple moving average. You will also see small white cross marks at various places on the chart, these small white cross signs indicate the crossover between the price and the moving average.
Now here you will notice that every time the price crosses the moving average from above to below, the price trend changes to bearish for some time.
Conversely, every time the price crosses the moving average from below to above, the price trend changes to bullish for some time.

You can identify the trend from different moving averages on different time frames through this crossover between price and moving averages

Now by identifying the trend through the crossover between price and the moving average, don't you think you will be able to trade more confidently?

This is why they say "Trend is your Friend"
Because trends reflect the psychology of market participants. If the trend is upward then it simply means that buyers are dominating the seller. Conversely, If the trend is downward then it simply means that sellers are dominating the buyers.

Once you accurately identify a trend, you can better plan your trading strategy, which will reduce the probability of risk and increase the probability of reward.

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PS: The above write-up is only for learning purposes and not financial advice. Identifying the trend is important indeed. But apart from this, many things have to be kept in mind before trading. Which I will definitely try to discuss in my future blogs. Please do your own #research before #trading or #investing your hard-earned money.

My English is not very good so sometimes I use 'Google Translate'. Please don't think that anything I have written in this blog has been copied from somewhere or is AI-generated.

Thank you for reading this blog.

आज के लिए बस इतना ही।

"Keep Learning, Earning, Growing, and Smiling"

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