The "Trend Trading" strategy is a popular approach in financial markets based on the idea that asset prices tend to move in a particular direction (trend) over a period of time. Traders employing this strategy seek to identify these trends and "ride" them with the goal of making profits.
Here is a summary of the key points:
What is a Trend?
A trend is the general direction in which the price of a financial asset moves over time. It can be:
Uptrend: The price forms higher highs and higher lows. Traders look to buy (go long).
Downtrend: The price forms lower highs and lower lows. Traders look to sell (go short).
Sideways/Range-bound: The price moves within a defined range without a clear direction. Trend traders often avoid these markets or wait for a breakout.
Fundamental Principles:
"The trend is your friend": The central belief is that trends tend to persist once established.
It's not about predicting the future: Trend traders do not try to guess exact price levels, but rather follow what the market is doing in the present.
Technical analysis: It is primarily based on technical analysis to identify and confirm trends.
How is it implemented?
Trend Identification:
Trend Lines: Draw lines connecting the lows in an uptrend or the highs in a downtrend.
Moving Averages (MA): These are indicators that smooth price fluctuations to show the direction of the trend. Common examples include the Simple Moving Average (SMA) and the Exponential Moving Average (EMA).
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