The Trend Trading Strategy is a trading strategy that relies on identifying the market direction and taking advantage of the directional movement of financial assets. Here are some key points about this strategy ¹:
- *Improving the win rate*: Trading with the trend enhances the chances of success, as it increases the likelihood of making profits.
- *Identifying the trend*: A 200-period moving average can be used to determine the general direction of the market. If the price is above the moving average and the trend is upward, this indicates an upward trend.
- *Types of trends*: There are three types of trends:
- *Strong trend*: Characterized by strong buying pressure with shallow retracements.
- *Healthy trend*: Characterized by buying pressure with medium retracements.
- *Weak trend*: Characterized by fluctuations in direction with large retracements.
- *Best time to enter*: Depends on the type of trend. In a strong trend, entry can be made at the breakout. In a healthy trend, entry can be made on a retracement towards the 50-period moving average. In a weak trend, entry can be made at support and resistance levels.
- *Risk management*: Stop-loss orders should be used to protect trades.
- *Developing the trading strategy*: The answer to seven key questions must be available, including market identification, time frame, entry and exit conditions, and trade management.