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Trend trading strategies: a beginners’ guide

Trend trading is a popular strategy as it enables traders to identify and take advantage of market momentum. Discover how to get started trend trading, including how to use three trend-following indicators.

ChartSource: Bloomberg

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What is trend trading?

Trend trading is a strategy that involves using technical indicators to identify the direction of market momentum. It is based on the idea that markets have an element of predictability, so by analysing historical trends and price movements, a trader will be able to forecast what could happen in the future.

Trend trading is usually considered a mid to long-term trading strategy, but it can in theory cover any timeframe, depending on how long the trend lasts. It is usually adopted by traders who prefer a position trading or swing trading style. Position traders are those who will hold a trade for the entirety of the prevailing trend, ignoring day-to-day fluctuations, while swing traders are those who will identify a trend and ride it from start to finish.

How to identify a trend

Trend trading strategies are designed to help you identify trends as early as possible and exit the market before they reverse. Both the opening price and closing price, plus the trading range of every individual candle provide traders with a wealth of information that can be used to identify the ebb and flow of the trend.