How many times did you hear the words “The trend is your friend”? A lot of times, I bet. Only to exist honest, most of the so-chosen “gurus” out in that location just drop those words without taking the time to really explain what exactly it means and how to get some money from our best friend, the tendency. Well, no more! Today I am going to introduce yous to more than one way of cashing in on a trend and of course, how to correctly identify one. Also, y’all probably heard me say that y’all should never base your trading determination on a unmarried indicator or tool. Guess what: we are going to cover that also. Merely first and foremost, we must place the trend. Here we become:
How does “The Trend is Your Friend” Strategy Works?
is characterized by Higher Highs and Higher Lows. Non too complicated, I would say. Picture coming up:
This, my friends is an uptrend; every new high/pinnacle/peak or any you desire to phone call it is higher than the previous and the new lows/bottoms are college than the previous. Price is moving up in an uptrend.
is divers by Lower Highs and Lower Lows, the opposite of an uptrend:
Once nosotros see Lower Lows and Lower Highs, a downtrend is forming. Now to trade a trend, we must depict trend lines, one of the virtually underutilized technical analysis tool, only one of the almost useful.
To depict a trend line, all we have to exercise is to connect
two College Lows in an uptrend
two Lower Highs in a downtrend.
In an uptrend nosotros connect the Lows and in a downtrend we connect the Highs. Need motion picture, right? Coming upwards:
Ok, after the first two points are connected with a line, nosotros start “fishing”. The third touch (and the ones that follow) tin be traded in the direction of the tendency equally long equally nosotros have another indication(s) that price will bounce from that signal. But what other indication… hmmm let’due south wait at other common “tools” and allow’s endeavor one.
Combining the Trend line with Japanese candlesticks:
Oh, what a nice Pinocchio/Pin bar. I surely cannot allow that ane go by. It’s a great rejection/reversal candle combined with the downtrend and a bounce from our tendency line. Like shooting fish in a barrel coin from my best friend, The Trend and his buddy, Pinocchio. Hither’south another i:
The outset ii Lows help us describe the trend line and then we can trade any Japanese candlestick germination that touches or comes very close to it. In this case, we had ii expert trades signaled by an Engulfing blueprint and a Pinocchio/Pivot bar.
Combining the Tendency line with Divergence
In this example, when the tendency line is touched the tertiary fourth dimension, we can clearly see Hidden Bearish Divergence, with toll making a Lower Loftier and RSI press a Higher Loftier. In this case, the cost immediately dropped like a stone, and so any blazon of downwards merchandise would take worked: Sell (if you are trading Forex, CFD, Crypto) or Put (if you lot are trading Binary Options). Too Difference, at that place’s also a Pin bar correct on the tendency line, giving united states of america fifty-fifty more confidence in the trade.
Combining the trend line with Fibonacci
Hello Mr. Fibonacci! The bounce from the trend line is sustained by a exam of the 61.viii Fibonacci level. Some other swell merchandise where my best friend, the trend puts some coin in my pocket.
Why does “The Trend is your Friend” Strategy Suck?
The market is designed to shake our confidence, consume away at our discipline and take money out of our pockets. It also doesn’t always behave like we would await it to and a tendency line combined with 10 more tools or indicators is no match for its erratic motility. Sometimes the price will become through it similar a hot pocketknife through butter and afterwards our trades are airtight at a loss, it will contrary just to laugh in our confront. Unfortunately, we cannot avert that and we must practice our best to take good entries, in line with the trend, only remember that even the all-time friends suck sometimes and all trends eventually break downwards.
Why “The Trend is your Friend” Strategy Doesn’t Suck?
All trades taken in the direction of the prevailing trend have a higher risk to be successful. If a confirmed trend is in place, a bounce from the tendency line combined with a tool like Japanese candlesticks, Divergence, Fibonacci or any other reliable indicator is for me a merchandise that cannot be missed. At that place is no certain trade in Forex, CFD, Binary Options or whatsoever other market and all we can do is make sure nosotros tilt the balance of probability in our favor.
The Conclusion – Tendency is indeed your Friend!
The examples above are meant to illustrate the power of the trend and this is more than but a strategy; I would phone call it a way of looking at trading and making sure that we are ever riding the trend. Then, the exact entry is somewhat secondary considering we can accept an entry bespeak from any reliable tool and we are non express to the tools presented here by me. I only tried to exemplify the saying “The tendency is your friend” and testify you what exactly that means. Once you finish trading against the trend and just go with the flow of the market I am confident that your track record will profoundly improve.