Trends
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Successful trading comes down to identifying Trends so that you can maximize your win probability.
Spotting a trend and knowing how to trade it can be pretty easy with the right tools and training. Before we get to any trend identification and trend trading tools and tactics, let’s look at some uptrends, downtrends, and range-bound markets to get a sense of what a trend (or lack-there-of) looks like. Learning to spot a trend may seem overly simplistic, but trends are the key to our trading system and as such, it is important to start by ensuring a strong foundation.
Uptrends:
Definition: Overall upward price movement.
Characteristics:
Higher highs and higher lows.
Uptrend remains intact as long as these swing points persist.
Reversal signaled by lower swing highs or lower swing lows.
Downtrends:
Definition: Overall downward price movement.
Characteristics:
Lower lows and lower highs.
Downtrend remains intact with these swing points.
Reversal indicated by higher swing highs or higher swing lows.
Sideways Trends:
Description: Horizontal price movement due to balanced supply and demand.
Occurrence: Often during consolidation before trend continuation or reversal.
Challenges: Frustrating for short-term traders.
Pullbacks:
Definition: Temporary retracement within a trending market.
Characteristics:
Price action retraces a portion of gains before resuming the trend.
Not to be confused with reversals.
Lasts a few trading sessions.
Indicates a pause or dip in the overall trend.
Reversals:
Definition: A turnaround in the price movement of an asset.
Bullish Market:
Reversal: Price falls from an absolute high established by an uptrend.
Indicates a potential trend change.
Bearish Market:
Reversal: Rising price action from an absolute low during a preceding downtrend.
Signals a shift in market sentiment.
Continuation vs. Reversal:
Continuation: Trend holds.
Reversal: New trend forms.
