A trend is what is popular or hip at a particular point of time. A trend can also be what is trendy in the eyes of the majority of people at that time. However, a trend can also refer to a specific style in fashion or even entertainment while a trend generally tends to refer to a particular type of clothing. In most cases the term refers to something that is considered to be current or up-to-date.
Trend analysis is based on the theory of technical analysis. Technical analysts study history and use it to predict future price movements. Trend analysis helps to determine the strength or weakness of the current trend. Usually this type of analysis is conducted by professionals who have a working knowledge of the market and how it works. Trend analysis looks closely at the factors that contribute to the strength or weakness of the trend.
Long-term trends are considered to be stable. However, short-term trends can be volatile especially when a country is involved. Traders who are looking for strong long-term trends should therefore diversify their investments to include more stocks from different countries. Short-term trading is more suitable for day-traders who are looking to exploit small daily price changes.
Short-term trend analysis looks into the general direction and possible directions for a trend. The trend analysis tells the day trader what to expect in the coming days. Trend analysis can be done in both long-term and short-term trends. Long-term trends generally follow a general direction; whereas short-term trends are more complex as they reveal sudden changes that often surprise traders.
There are two types of trend – the long-term and the short-term. Long-term trends generally follow a predictable path. Likewise, short-term trends can vary greatly. Knowing when the right time to enter a trade is also essential to ensure profitable trades.
The key to predicting trends is knowing the fundamental analysis i.e. support and resistance levels, volume, price action, general direction. Trend analysis also involves the use of technical analysis like breakouts, high points, support and resistance levels and timing the tops and bottoms. It’s important to look out for high-value-priced trend setups like price gaps. These gaps indicate the interest of buyers in buying the currency and have the potential to go up. Gaining exposure at these levels is a wise investment practice.
There are many technical indicators which are used in identifying the overall direction of the trend. Most popular technical analysis tools include the relative strength index (RSI), oscillators, distance and velocity indicators, support and resistance indicators, moving average convergence (MACC) and volume indicators. Trends can be highly profitable in a volatile market. Higher swing highs and lower swing lows provide more opportunity to profit. Trading on margin calls for more aggressive entry and exit and should only be executed with proper risk management.
The popularity of trading on the trending markets is increasing day-by-day due to the fact that traders now have a better visibility of the bigger picture. With the U.S. stock markets currently in an uptrend, traders are spotting entry and exit opportunities faster than ever. With this uptrend, more experienced traders are entering into the fray and finding great success. For those who are new to trading on the tops and bottoms of the trending markets, it is highly recommended that you begin trading on the general direction of the trends; this way, you can get a better grasp of the market’s momentum and avoid the common mistakes made by beginning traders.