The trend strategy is a very common method of trading and you are bound to make plenty of profits from it, if you use it properly.
When you are trading an asset, trends are very vital to consider and out of all the strategies that are out there, 90% of them, at some point, refer to the trend strategy as they make their calculations.
This strategy helps the trader to benefit maximally from trades carried out during the day.
Deep understanding of the trend strategy
A trend is the most common direction that the value of the asset is taking. This can be concluded after several periods. There are short term trends which are found within a bigger trend which may take several days, weeks, months or years. The most important thing is to follow the trend over a given period of time and then put all the trends into account when you are making your decision. A trending market is one that is on a:
- Downtrend: here the value of the asset will show lower closing highs and lower closing lows. There are times when the value rallies. Equally, there are periods when the market comes together. The most common trend here will be the downward one.
- Uptrend: this is when the value on the chart shows a higher closing highs and higher closing lows. There are times when the price withdraws back and comes together but the most common trend will be the value goes up.
You will only be able to make profits when the value of the asset you are trading displays a clear direction in its movement. In the event that the trend does not have any specific direction, then it is said to be non-trending.
Importance of trends
Trends tend to recur and they can last for quite a while. If the value of an asset is going up, chances of it continuing in that trend are high than the opposite taking place. This is the reason why trading trends are considered to have the backing of the market. The trend strategy can be used on any asset be it stocks, commodities, indices or currency pair. The more you trade using this strategy, the easier it gets to understand than when you are starting off. This is certainly the kind of a strategy that you can use irrespective of whether you’re a beginner or an experienced trader.
How to identify trends
The easiest way to do so on a chart is by using the technical indicator called moving average. This indicator will work out the average value of the changeover or within a given time frame. The two types of technical indicators used are exponential moving average (EMA) and simple moving average (SMA). Most traders have attested to the fact that EMA provides more weight to the latest price change as you do the calculation. However, the difference between the two methods is minimal, though.
Easy binary options trend strategy
This is the strategy that uses the EMA calculation method and it is intended to help the trader make profits from moves made during that particular day. Here, we are looking for a crossover of a low time period moving towards average with a high time frame. This is to signal a change in the momentum of the market as per the direction of the cross. That is usually the best path to take when dealing with hourly strategies though it can also be used in shorter and longer periods. The approach here is to target movements in the first hours of trading since it is supposed to go till the end of the day. To set up yourself for the trade you will need the following;
- An open account that is set to end at the end of the bay
- A chart for the asset you are trading which has been timed with 30 minutes time frames
- Motional averages that have been set to 5, 20, 20 day EMA or SMA.
Trend strategy – entry signal
The signal indicating when you are supposed to enter the market will come at the time when the 5th and the 10th day EMA cross over the 20TH day EMA. When the signal is released, a contract is opened towards the direction of the move to the expiration at the end of the trading day. A trading position will only be opened if this signal is released within the first few hours of the day.
Trend strategy – performance
The binary options trend strategy will work best when the markets are trending high times. When the market is strong on the weekly or daily charts, then the trend during the day has an 85% success rate.
Trend strategy – important things to keep in mind
When the trend is on the average, the indicator is lagging which means it will indicate where the market was and not where it will be. That is the reason why it is absolutely vital to trade only in the event that the signal is released early during the day. This is to make sure that enough time is left for the market to work out any pull back, something which might be experienced by the time the day ends. Many traders go for this strategy using short time frames like 15 minutes as well as using varying time frames when moving from the averages. However, using a short time frame may lead to false signals being released. On the other hand, if the time frame is too long, the signal will come when it is too late for you to make a move. You should keep an eye for any news that will be released and would affect the trading session in any way. You may want to avoid a trade that will be negatively affected by the news. It would be better to enter the trade after the news has been released and you have accessed how the market reacts to the news.
Trend strategy – conclusion
The trend strategy requires a strong market so that it can work maximally. The secret to doing well in this venture is to enter the market when the volume is on the higher limit. That way, you will stand better chances of making really good profits out of your trades.