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Trading 101: Always trade with the trend

by , 06 October 2015

You've probably heard the stock market adage: The trend is your friend.

It is. The trend is something you should pay close attention to when you're trading. Trade against it and you're likely to lose money.

Let's take a look at why the trend is so important when it comes to trading…

Why you should trade with the trend

You should never disregard the trend or try to trade against it. Trade with it and you’ll be a much more successful and profitable trader.

For a trend to change, especially if it’s long established, takes a lot of time and effort.

For you as a trader, this means identify the trend and trade with it. And you should also try to avoid picking the top or bottom of a trend, whether it’s going up or down.

What is a trend?

There are different types of trend.

An uptrend is when the price of a share or other asset makes a series of higher highs and higher lows, Frank Hemsley in Profit Watch explains. You can see an uptrend in the chart below…

Chart of an uptrend

As you can see, the price is moving higher in a zig zag movement. As long as the last low doesn’t break the previous low, you’ve got an upward trend.

Strong uptrends tend to resume even when they break momentarily. This is thanks to buyers who missed out earlier in the trend jump into the trade at a lower price.

Prices move about and don’t stick to a straight line as there are always buyers and sellers in a market.

When you’re trading, ensure you draw trend lines on your charts. This will give you a good idea of what’s going on.

So there you have it. Why you should always trade with the trend.

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Trading 101: Always trade with the trend
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