If you haven't heard of the phrase "the trend is your friend", you're either new to trading, or have been living under a rock. Trend trading is one of the most popular methodologies used by most people today.
What Is Trend Trading?
As the name suggests, it simply means trading in the direction of the prevailing trend. You buy in an uptrend, and sell on a downtrend. It's a simple concept.
However, the specifics of this way of trading are often overlooked by amateur traders. Also, there are some complications about trend trading that they don't know about. In this article, I hope to be able to explain to you a little bit more in detail about how to trade trends.
When To Buy/Sell
I've known many people who enter into trades at the wrong time while trend trading; and I found out that the reason for this is because they listen to the advice of so-called online "experts".
Here's what these "experts" tell you: in an uptrend, buy on a downward retracement. Although this piece of advice is probably well-intentioned, it's actually quite dangerously misleading. The people who follow this advice often end up finding themselves right at the top of a reversal.
The RIGHT Way To Trade Retracements
When trading a trend retracement, you should first identify significant support/resistance points where the retracement is likely to end, such as at Fibonacci levels or at pivot points. Wait for the retracement to hit that level.
Next - and this is the part most people ignore - you must wait for a confirmation candle/bar before you enter into the trade. This means that on an uptrend retracement, you should wait for a green up-closed candle to form before you enter. Never enter into the trade before the candle/bar is completely formed!
The reverse is true for downtrend retracement.
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