Trading strategies: identifying and trading with the trend


In this short video we’re going to take
a look at another simple trading strategy, looking at the idea of trading
with the trend. Hello I’m David Jones from Capital.com and this is another in our series of short videos on simple trading strategies. Trading doesn’t have
to be complicated and I think if you’ve ever done any research, or reading, you
will have seen the phrase “the trend is your friend”. Now trading in the direction
of the trend means you’re trying to put the odds in your favour. So how do we
identify these trends, and where are the good points – the low-risk points – to get
in on a trend? Let’s take a look at the charts. Let’s take a look at the idea of trading with the trend. I thought we’d look at that the Dow Jones, the US 30,
index, a very popular market during 2018 and look we see the start of a trend
here and the definition of an uptrend we have higher highs and higher lows and
the market starts to move higher, let’s just pick up on it with our drawing tool.
I’ll scroll down and pick trend. So here’s our simple trend line – the
assumption is whenever the market sells off, we’re looking for this trend line to
hold. So we need two points to draw the start of the trend line and it’s the
third move here that confirms it. It comes back to here, doesn’t get quite back to
the actual level but you know this is a real market and it doesn’t work
perfectly all the time – where it’s going to come down to the exact spot, but the
assumption is while we’re above the trend we’re looking to be a buyer. So
dips are viewed as buying opportunities. Let’s just pick up on this sharper trend.
So you can see here it’s accelerated, so again we’ve got a couple of points and
it’s the third point here that confirms it. So at the moment, at the time of
recording the Dow, is trading around about twenty-six-thousand five-hundred.
If it’s sold off towards twenty-six- thousand, it’s still above the trend. So
that weakness would be viewed as a buying opportunity. So in an uptrend
we’re looking to buy – let’s take a look at downtrends. So here’s the Pound-US
dollar starting in May 2018. Let’s again just pick up
on our trend here off these highs. So in a downtrend we’re gonna pick up on the
highs – of course in an uptrend we pick up on the lows. So again the assumption is
every time we see the market come back to the trendline in a downtrend, we’re
expecting it to run out of steam, and this worked pretty well in holding the
market level – we had that rally in late July up towards the 132 level and then
it turned and fell heavily and it’s here we get the trendline break. We’re going
to talk about this in another video but for now when we’re looking at the trend.
We’re just looking at following that trend, using the trendline as a simple
guide as to where we’re expecting the market if it rallies in a downtrend to
run out of steam, or if it falls in an uptrend to bounce back, and it’s a really
simple method. You see these trend lines over all sorts of different timeframes.
Whether you’re looking at daily, weekly or short-term charts. Such as hourly or
10 minutes. So it doesn’t work all the time but it can help you trade with a
momentum of the market. You’re putting market sentiment on your side, so
whatever time frame you’re trading, it normally makes sense to try and trade in
the direction of the trend and we can identify that using trend lines. Whether
the markets been rising or whether it’s been falling. Like I say it doesn’t work
all the time, which is where stop losses come in: to manage our risk, but the idea
is that if we lock into a trend hopefully we’ll end up with profits that
do end up being bigger than our potential losses. We’ll wrap things up
there as usual don’t forget there’s a whole host of other content that we have
out there on our youtube channel: trading strategies, looking at markets such as
currencies and indices. To never miss out just make sure you’re subscribed by
clicking the subscribe button down there. Click the alarm bell notification and
you get automatic notified every time we upload a new video, but for this short
introduction on trend trading we’ll leave it there. So for me David Jones and
Capital.com good luck with your trading.

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