Trend Trading Tips - Use These Technical Tools To Improve Your Trend Trading System
There many ways that a trader can implement to perform trend trading.
In this article, allow me to explain some technical analysis tools which you can use to have better trend trading outcomes.
These tools are obviously famous trend following tools.
Moving Average Moving Average is the average of price of an underlying asset, for instance a currency, within a certain period of trading time.
These averages show both directions: uptrend and downtrend.
As long as price remains above a certain Moving Average then the likelihood is market direction will keep on bullish.
On the opposite, when price remains under a certain Moving Average then the odd is market direction will go south.
There are several types of Moving Average i.
Average (SMA), Exponential M.
Average (EMA or XMA) and Weighted Moving Average (WMA).
These types of Moving Average have their own advantage ad disadvantage.
A trader should know the basic of each type, its formula and usage.
Afterwards, a trader should study and exercise them all to gain more understanding and experience.
Bollinger Band It was developed by John Bollinger.
Basically it is a variation of Moving Average.
Many well-known traders use this tool to perform their trend trading and they make it consistently.
It has three bands: upper band, mid band and lower band.
By default, its mid band is 20-period Simple Moving Average.
Any strong uptrend will have price going upwards within upper and mid bands.
And when we see price going downwards within mid and lower bands then we have a strong down trend.
Trend Channel Trend channel is a two parallel line connecting certain points of price, similar to trend line.
This is one favorite tool of trend trading lovers.
It is simple but powerful.
Unfortunately, any traders do not know that a proper trend channel construction has a relation to Elliott Wave Principle.
Anyway, to make it easier for most traders, especially novice ones, to construct a trend channel is simply by connecting three significant points of price when we roughly identify a trend exist in a market.
For example, when a trend rises we can connect two points of consecutive higher lows and one highest point of price within the same period.
However, it will be better if you spend some time to do your own research and exercise on those technical analysis tools.
Sooner or later as your trading hour increases, you will have a great number of improvements on your trend trading.