Trend trading is currently one of the most popular trading strategies for beginners. However, there is no single trend trading strategy – there are many ways to profit from trending, all of them with individual pros and cons. Today, we’ll take a closer look at the 5 best trend trading strategies for beginners.
What is trend trading?
Trending, or trend trading, makes use of technical indicators to predict market movements by analyzing historical data and past price fluctuations in order to forecast what will happen in the future.
You can perform trend trading on any market that suits your trading style – indices, stocks, EFX, and more. Identifying trends isn’t easy, especially for beginners, so make sure you follow a tried and tested strategy when starting.
Top 5 trend trading strategies for beginners
Let’s inspect the 5 most popular trending strategies for beginner traders:
1. Identifying trends
The earlier you identify a trend the better, as you’ll be able to make the most profits on it. There are three types of trends: uptrends, downtrends, and sideways trends. In uptrends, the market prices are rising, making a great opportunity for opening a long position. Downtrends, on the other hand, mean that a market price is decreasing – but profits can still be made by opening a short position.
Sideways trends fluctuate between rising and falling, but the price never reaches higher or lower price points within a given trend. While most traders ignore these, range traders and scalpers can still make a good profit on them.
2. Following moving averages
Moving averages are the basic trending indicators – they give us information about the average prices of a given asset over a certain time period. While these won’t tell us immediate predictions about future prices, historical data can be used to confirm speculations about whether the prices will be going up, down, or whether they’ll stall.
3. Relative Strength Index
RSI is another popular indicator used for trend trading – it’s used to identify momentum by inspecting the average profits and losses over a time period. An extremely high or low RSI can tell us that the trend is reaching its maximum potential and might soon change.
4. Average Directional Index
ADX gives traders insight into the strength of a given trend. A high ADX indicator can mean that a strong trend is about to start, prompting traders to open either long or short positions. Whether the trend is going upwards or downwards, ADX can give us information about its potential profitability.
5. Implementing a stop loss strategy in trend trading
Stops and limits are used to create a risk management strategy in trend trading. A combination of stop orders and limit orders is used to prevent losses and maximize profits – both are extremely useful, often combined into single stop-limit orders that give traders a lot of control over their positions. Never trade without these!