What is the Trend?
The trend is the most concept in terms of technical analysis. Many studies prove that the market moves in trend backed by trustworthy and massive data for hundreds of years.
There are 3types of the trend. The uptrend is when the previous high and previous low is increasing. The downtrend is when the previous high and previous low is decreasing. Side Trend is when the supply and demand balances, the market has no definite direction.
The trend is the fundamental phenomena that the technical indicators and systems utilise. This is because the base hypothesis of these tools is “market moves in trend”. Therefore, when the market has no clear directions, the trading strategies may not function accurately.
But, when the price moves to the sideway, up and down at a certain price range, it is also a good opportunity to use the breakthrough strategy.
What is the Trend Line?
The trend line is a tool to analyse the price movement technically. This is one of the most widely used analysing methods. Even though there are so many of the Expert advisors and trading systems are emerging, the trend line is hard to ignore!
The longer the trend consists and more attempts to maintain, the more credible the trend line is. The trend in 12monthes is more strong than the trend that lasted 3monthes. The trend that successfully sustains in 10attmepts is more credible than those who lasted for 3 attempts.
It is simply a straight line drawn on the chart. Easy to use and easy to analyse the trend of the market. However, many people do not know exactly how to draw an accurate trend line. The trend line is separated into uptrend and downtrend and classified as short, mid and long-term based on the timeframe.
How to draw a Trend Line?
It is essential to draw a trend line accurately. Every trend needs evidence, and the evidence has to be at least 2 previous lows and 2 previous highs.
uptrend
downtrend
How to use a trend line?
Uptrend
– The trend line helps you determine the low and high points of the adjustment phase and tells you when to switch trends.
– This is a temporary drop in the adjustment phase that is unavoidable in the upward trend, often touching or very close to the upward trend.
– Because the dealer intends to buy from a temporary fall in the upward trend, this trend reverses the support line used as a buying area.
DownTrend
– The falling trend line can be used as a resistance area for selling purposes.
– Unless this trend line is breached, this will determine the buying and selling areas.
-The breakthrough of the trend line is one of the fastest warnings of changing trends.
Breakthrough
When drawing a trend line, do not draw only the closing price of the day, but must include both the lowest and highest points of the day, including all-day market price movements.
– In fact, if you draw a trend line, the market price of the day may briefly deviate from the trend line. It can be the hardest for a technical analyst to judge.
-You should modify the trend line to determine whether you want to draw the trend line again or ignore it as a temporary movement for a short time.
– The best way to do this is to draw a new trend line with the existing trend line when the trend line is broken and then observe the subsequent market price movements to select one of them.
– However, once the price has crossed the trend line, it is difficult to determine whether the real trend is changing or a temporary breakthrough. So we need a standard to see if there’s been a change in the trend.
Breakthrough Strategies
1.Enter the market when you expect it to breakthrough.
In this case, since you enter your position before the breakthrough occurred, the trades’ profit rate is likely to be amazing. But, once you catch the wrong trend, it would lead to a big loss.
2. Enter when the breakthrough occurred.
this method would have a higher probability of succeed. Yet, as you enter a position when the breakout is confirmed at a higher price, the profit might be lower but more stable.
3. Enter when the retracement happens after breakthrough!
This is a more conservative way of approach to entering a position. There is a risk that the price might go higher before entering a position.
How to determine the change in trend?
1. If the closing price has crossed the trend line, it is likely that the trend has shifted.
2. If a price is being formed beyond a certain percentage, it can be seen as a trend shift. For example, if you are up or down more than 10% from last month, you can see it as a trend change.
3. If the trend line has crossed after a certain time, you can see the trend shift. For example, if you’re trading on a breakthrough line for a week or two after a breakthrough, you can see it as a trend shift.
What is the trend channel?
– Trend table is a line drawn when price movement moves within a certain interval along the trend line.
– This is a technical analysis tool used to determine if price fluctuations are formed within a certain channel (range).
– Draw a line parallel to the rising trend line in the rising phase and a line parallel to the falling trend line in the falling phase.
How to use a trend channel?
– When a trend occurs, market price movements are more likely to fluctuate between the two trends rather than break through the main and secondary trend lines formed up and down.
– Regardless of whether the trend is rising or falling, if the price is close to the main trend line at the bottom, it can be used as a buy-in, vice versa, to sell when the secondary trend line is approached.
The trend’s importance is appropriate for these short-term transactions and is easy to observe overall price and trend movements.
-Even if a trend is formed and price movements are made between the top and bottom trend lines, they eventually break through the trend. Breaking through the rising trend’s hypocrisy is a trend strengthening and new trend, and breaking through the secondary trend line is a shift in trend.