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Trend trading basics

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There are as many different trading styles as there are traders, but some are more successful and enduring than others. One of the more popular day trading strategies is trend trading. Defined as recognizing the trends of assets and trading on an upswing, trend traders keep an eye on the market to identify trends and take advantage of them before they hit a stopping point. Due to the fact that trends are dynamic and can change quickly and with little warning, however, trend trading can be a difficult approach to master. This article will look at trend trading basics as well as how to stay on top of an asset’s momentum.

Why do people like trend trading?

Trading can be a difficult prospect for many people. It takes time to familiarize yourself with the market and you must have the foresight to make smart long-term trades. Trend trading offers day traders an advantage because, at least in theory, it requires less time and knowledge than more traditional trading. The goal in trend trading is to identify an upward trending asset and invest before it peaks. If an object in motion stays in motion, then it is easy to understand why trends can be tempting to new and experienced traders alike.

In practice, however, trend trading can be tricky to master. Not every upward trajectory indicates that the time to buy is nigh, after all, and sometimes downward trends only lead to new rallies. Before you can jump into the market of trend trading, you should understand how to identify the trend’s direction.

Understanding the direction of the trend

Here are a few things to keep in mind when it comes to determining an asset’s direction of travel.

#1 Look at the big picture

While noticing an upward tick in momentum is a good start, it is important to note that sometimes stocks have a history of rising, plateauing and then falling, while others seem to be on a sustained upward trend. One way to truly understand an asset’s trajectory is to zoom out and look at the bigger picture. What does the asset’s historical movement look like?

#2 What is driving the market?

Trends are often driven by external factors. What seems to be driving the interest in this specific asset? If there is a clear trigger, is there a chance the market could snap back quickly and erase the upward momentum? Understanding why assets are moving is just as important as understanding where they are moving. Once you understand the driver, it is easier to predict future growth.

#3 Join a community

Joining a trading community is another good way to understand trend directions. Established communities such as the one fostered by AskTraders, an industry expert, will have plenty of experienced traders sharing their insight and hard-won knowledge on specific assets and trends.

Are you interested in trend trading? Keep our tips in mind as you explore this new trading technique and begin to invest. Remember to always do your homework before committing!