{"id":5355,"date":"2021-10-25T18:43:10","date_gmt":"2021-10-25T13:13:10","guid":{"rendered":"https:\/\/www.tickertape.in\/blog\/?p=5355"},"modified":"2022-05-25T18:38:05","modified_gmt":"2022-05-25T13:08:05","slug":"trend-trading","status":"publish","type":"post","link":"https:\/\/www.tickertape.in\/blog\/trend-trading\/","title":{"rendered":"Trend Trading Guide 2022 &#8211; Meaning, Strategies, Indicators And How It Works"},"content":{"rendered":"\n<p>As a trader, you buy and sell a company\u2019s shares to profit. To trade profitably for a longer time, you need to be aware of smart <a href=\"https:\/\/www.tickertape.in\/blog\/day-trading-strategies\/?utm_source=blog&amp;utm_medium=article\">trading strategies<\/a> based on information derived from technical patterns, trends and charts. One such strategy is known as trend trading. In addition to being the most commonly followed set of trading techniques by professionals in <a href=\"https:\/\/www.tickertape.in\/blog\/what-is-equity\/\">equity<\/a> trading, trend traders also use price action to determine a trend\u2019s direction and potential shift.&nbsp;<\/p>\n\n\n\n<p>In this article, we will take a closer look at trend trading and the micro-concepts it entails.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_66_1 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title \" >Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.tickertape.in\/blog\/trend-trading\/#Understanding-trend-trading\" title=\"Understanding trend trading&nbsp;\">Understanding trend trading&nbsp;<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.tickertape.in\/blog\/trend-trading\/#Types-of-trend-trading\" title=\"Types of trend trading&nbsp;\">Types of trend trading&nbsp;<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.tickertape.in\/blog\/trend-trading\/#Uptrend\" title=\"Uptrend\">Uptrend<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.tickertape.in\/blog\/trend-trading\/#Downtrend\" title=\"Downtrend\">Downtrend<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.tickertape.in\/blog\/trend-trading\/#Sideways-trend\" title=\"Sideways trend\">Sideways trend<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.tickertape.in\/blog\/trend-trading\/#Strategies-and-indicators-of-trend-trading\" title=\"Strategies and indicators of trend trading\">Strategies and indicators of trend trading<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/www.tickertape.in\/blog\/trend-trading\/#The-MACD-trading-indicator\" title=\"The MACD trading indicator\">The MACD trading indicator<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/www.tickertape.in\/blog\/trend-trading\/#The-RSI-trading-indicator\" title=\"The RSI trading indicator\">The RSI trading indicator<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/www.tickertape.in\/blog\/trend-trading\/#The-ADX-indicator\" title=\"The ADX indicator\">The ADX indicator<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/www.tickertape.in\/blog\/trend-trading\/#Trendlines-and-chart-patterns\" title=\"Trendlines and chart patterns\">Trendlines and chart patterns<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/www.tickertape.in\/blog\/trend-trading\/#In-closing\" title=\"In closing&nbsp;\">In closing&nbsp;<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\" id=\"trend\"><span class=\"ez-toc-section\" id=\"Understanding-trend-trading\"><\/span><strong>Understanding trend trading&nbsp;<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>As the name suggests, trend trading is a market trading strategy that uses several <a href=\"https:\/\/www.tickertape.in\/blog\/momentum-indicator\/?utm_source=blog&amp;utm_medium=article\">technical indicators to identify market momentum<\/a>. It is based on the core premise that trading patterns in the <a href=\"https:\/\/www.tickertape.in\/blog\/how-to-invest-in-shares\/\">stock market<\/a> are predictable.&nbsp;<\/p>\n\n\n\n<p>Traders can thus analyse it strategically and use it to their best advantage. Experts in trend trading, for instance, evaluate gains by analysing the momentum of an asset in a specified direction. When the price of an asset moves steadily upwards or downwards, it is a sign that a trend is forming. Therefore, if a security is trending upward, a trend trader would take a long position and vice-versa.<\/p>\n\n\n\n<p>Traders who use this strategy often operate on take-profit or stop-loss. This way, they can lock in profits and avoid substantial losses if the trend reverses.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"types\"><span class=\"ez-toc-section\" id=\"Types-of-trend-trading\"><\/span><strong>Types of trend trading&nbsp;<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>With trend trading strategies, you can identify trends early on in a trade. This insight can help you to enter or exit a trade before a trend reverses. Trends are categorised into three types &#8211; uptrends, downtrends and sideways trends.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Uptrend\"><\/span><strong>Uptrend<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>When the market price of security begins to increase in value, it indicates the formation of an uptrend. Traders usually use uptrend to enter a long position.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Downtrend\"><\/span><strong>Downtrend<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>When the market price of security begins to decrease in value, it indicates the formation of a downtrend. In such a situation, traders would usually enter a short position.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Sideways-trend\"><\/span><strong>Sideways trend<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>A sideways trend is formed when the market price of securities remains static or range-bound. In other words, the prices neither touch high points nor low points.&nbsp;<\/p>\n\n\n\n<p>Traders usually tend to ignore such a trend. However, scalpers, who intend to benefit from extremely short-term movements in the market, make the best use of a sideways trend.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"strategies\"><span class=\"ez-toc-section\" id=\"Strategies-and-indicators-of-trend-trading\"><\/span><strong>Strategies and indicators of trend trading<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Let\u2019s decode the indicators that traders use to identify trends:<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"The-MACD-trading-indicator\"><\/span><strong>The MACD trading indicator<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>The Moving Average Convergence Divergence (<a href=\"https:\/\/www.tickertape.in\/blog\/moving-average-convergence-divergence\/\">MACD<\/a>) indicator helps traders to find the average price of a security over a specific timeframe:<\/p>\n\n\n\n<ul><li>Traders use this indicator to enter a long position, usually when a short-term moving average crosses over the longer-term moving average.&nbsp;<\/li><li>Traders may also enter a short position if a short-term moving average crosses below the longer-term moving average.&nbsp;<\/li><\/ul>\n\n\n\n<p>Moving averages are used for analysis, and traders usually combine the MA trend line with other forms of technical tools to determine a trend. This combination also helps to filter out the signals.<\/p>\n\n\n\n<p>Let\u2019s suppose the price of a security is above the moving average. This indicates the presence of an uptrend. In contrast, if the security price is below the moving average, it is a sign of a downtrend. Traders may watch for trend lines when planning to short or long a stock.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"The-RSI-trading-indicator\"><\/span><strong>The RSI trading indicator<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>The Relative Strength <a href=\"https:\/\/www.tickertape.in\/blog\/stock-market-index\/\">Index<\/a> (RSI) trend trading system is a strategy that identifies the momentum of prices and along with oversold and overbought signals. Traders can ascertain the RSI by observing the average profits and losses over a few specific periods, usually 14 periods. This further determines whether the movements of prices are positive or negative.&nbsp;<\/p>\n\n\n\n<p>RSI is usually referred to in the form of a percentage, fluctuating on a scale from 0 to 100. When the indicator moves above 70, and below 30, the market is said to be overbought and oversold, respectively.&nbsp;<\/p>\n\n\n\n<p>For example, you may wait for the RSI to drop below 30 to enter a stock.&nbsp;This indicates a long position, assuming the overall uptrend stays intact. The indicator shows that the price is pulled back currently and should rise again in alignment with the overall uptrend.<\/p>\n\n\n\n<p>You could, therefore, potentially exit when the RSI rises above 70 or 80 levels. Trend traders use these levels as an indication that a trend may be moving close to its maturity.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"The-ADX-indicator\"><\/span><strong>The ADX indicator<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>To analyse trends, traders also use the <a href=\"https:\/\/www.tickertape.in\/blog\/average-directional-index\/\">Average Directional Index<\/a> or ADX momentum trend trading strategy. The ADX indicator primarily measures the strength of a given trend. It allows traders to evaluate the security\u2019s price strength in both positive as well as negative directions.&nbsp;<\/p>\n\n\n\n<p>The line on the ADX indicator fluctuates between 0 and 100. If the indicator shows values from 25 to 100, it indicates a strong trend. However, if values fall below 25, it indicates a weak trend.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"chart\"><span class=\"ez-toc-section\" id=\"Trendlines-and-chart-patterns\"><\/span><strong>Trendlines and chart patterns<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>A trendline is drawn along swings &#8211; that may be high or low. A trendline is a line that indicates a possible area where the price may pull back in the future. Some traders buy during an uptrend, i.e. when the price pulls back and then bounces high off, giving a rising trendline. Similarly, some traders buy during a downtrend, when the price falls, generating a declining trendline.<\/p>\n\n\n\n<p>Finally, trend traders also analyse chart patterns, such as flags or triangles. These determine the potential continuation of a trend. For instance, if the price rises aggressively and forms a flag or triangle, a trend trader will look at signs when the price breaks out of the pattern to signal a continuation of the trend.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"In-closing\"><\/span><strong>In closing&nbsp;<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>To profit from stock trading over the long term, one should master <a href=\"https:\/\/www.tickertape.in\/blog\/technical-analysis-of-stocks\/?utm_source=blog&amp;utm_medium=article\">technicals<\/a>, <a href=\"https:\/\/www.tickertape.in\/blog\/fundamental-analysis-of-stocks\/?utm_source=blog&amp;utm_medium=article\">fundamentals<\/a> and strategies. Trend trading is a popular strategy that helps traders assess the emotion riding in the market and the sentiment of the investor, and take positions accordingly. Trend trading analyses the trend and signals the direction of the movement of the market. Thoroughly research the market and understand your risk appetite before dipping your feet in stock trading.&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Want to know about trend trading and how it works? Click here to find out the best ways to spot trend trading opportunities with exclusive strategies and become a trend trader!<\/p>\n","protected":false},"author":54,"featured_media":4947,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"_lmt_disableupdate":"no","_lmt_disable":"no","footnotes":""},"categories":[9,1760],"tags":[],"acf":[],"modified_by":"Neera Bhardwaj","jetpack_featured_media_url":"https:\/\/www.tickertape.in\/blog\/wp-content\/uploads\/2021\/10\/15.png?wsr","_links":{"self":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/5355"}],"collection":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/users\/54"}],"replies":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/comments?post=5355"}],"version-history":[{"count":3,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/5355\/revisions"}],"predecessor-version":[{"id":8844,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/5355\/revisions\/8844"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/media\/4947"}],"wp:attachment":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/media?parent=5355"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/categories?post=5355"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/tags?post=5355"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}