Trade Trends With Price Action Analysis

Today  we’re going to keep things a little simple. We’re going to trade trends with price action analysis. Now I know I’ve twisted your brain cells lately  with the pin bar,  inside bar, e.t.c This  time we’re going to play with  the trends. We’re going to learn how to ascertain when a market is trending and how to trade these trends .

But first:

What In The World Is A Trend?

Some of you may be wondering. “What  in the world is a trend?” Well, in the forex  world, a trend is a hot point of confluence(That word again) which increases the probability of a trade. It provides general information about the direct of the market. Now there are three types of trends. They are:

  • The uptrend
  • The down trend
  • Horizontal or Sideways Trend

The uptrend is a series of peaks and valleys reflecting the rise in a currency pair. And  it is categorized by a higher high(HH) and higher low(HL). The NZD/USD daily chart below  illustrates this point

forex-uptrend

The downtrend is the complete opposite of the uptrend. Here the price of the currency pair takes a dip. reflecting a decrease in value of the currency. The downtrend’s slide is reflected in lower highs(LH) and lower lows(LL ),a s is illustrated by the diagram below.

downtrend

Horizontal or sideways trend is slightly trickier. In this scenario, there very little up and down movement in the market. The trend’s direction may not be clear-cut, but in an anticipated event, it helps explain whether the chart will rise , go lower, or remain stable.

Now that we’ve gotten the basic introduction out of the way, here is something you need to keep in mind when trading trends.

Identify Trends With Only Price Action

You can only identify trends with only price action. Those fancy indicators which clutter your screen will only add to your confusion and frustration. You’d be better off observing the market swinging from left to right rather than zillions of lines which will make you pull your hair out. In fact watching the market swing from left to right is the most effective way of identifying a trend and spotting high probability trades.

The most fundamental method of identifying a trend  is to  determine  whether a market is maintaining a consistent pattern of higher highs and higher lows for an uptrend, or lower highs and lower lows for a downtrend. There is no need for any fancy trading systems or silver bullets here. Let’s take a look at a diagram below which illustrates what we’re talking about.

uptrend-downtrend

 

This diagram gives us the basic idea of looking for highs (HH) and higher lows(HL)  for up trends and lower highs(LH) and lower lows(LL)  for downtrends. If you notice each intersection between a higher high and higher low on the uptrend, and each lower high and lower low on the downtrend is considered  what is called a swing point or turning point. These swing points are the first sign of whether a market is trending .

If you do not see HH HL or LH LL, then most likely, the market is moving sideways. And when such movement persists,  you’re looking at a range-bound market or a market chopping back and forth.

If you’re not sure about your price action trading,  get back to What is Price Action Trading?

Character Traits of Trending Markets

Just like we humans, trending markets also have character traits. Trending Markets tend to follow the direction market followed by periods of recess or consolidation. After recess, they resume following the direction of the trend. Basically traders make a profit while the trends are hot. They then take a breather and consolidate. It’s during this period that  a lot of traders lose most of the profits they’ve made when the trend was strong.

The moral of the story is you need to  identify parts of the trend that will help you  save your money  as opposed to  blowing it away during the consolidation periods. Let’s take a look at an example of this scenario.

retracement

 

 

As you can tell from the diagram, the market  is moving sporadically in the direction of the trend . It then pauses for breath  before resuming its journey. Take note that not all trends are the same, but this is a typical description of a strong move by the market followed by a period of consolidation or retracement as it’s commonly known.Now in an uptrend, these swing points are known as support and in a downtrend, they  are also  known as resistance. The very first diagram pretty much captures what we’re talking about. Now let’s look at another diagram, but this time with support levels.

 

swing-points

Here we see a huge trail pattern by these swing points As the market retraces to these support levels, watch out for possible price signals near these levels.

If you’re not sure about identifying support and resistance levels, read up on Identify Support and Resistance Levels with Price Action Analysis

Well, that’s a wrap on “Trade Trends With  Price Action Analysis.” As you can see trend trading is a very easy way to make money in the forex markets. However, markets dont always trend the same way. And it is during this period of flux that you risk losing all your money. I leave you  with a very simple formula that famous trader/blogger Nial Fuller came up with.

The Best Trades=Trend +Confluent level+ Price action Signal.

Til next time take care.

Do You Want To Join The Forex Trading Gravy Train?

If you’ve stumbled in here looking to join the forex trade bandwagon, here is what you need to do . First,  look up Why Forex Trade Is So Popular.  Next, you learn  the fundamentals of forex trading by reading  Forex Trading Basics – Top To Bottom Part I  and Forex Trading Basics – Top to Bottom Part II .Next, you need to learn how to read candlestick patterns. They are the main feature of price action analysis And you need to know what these patterns are telling you. To be able to do that read the following on Fundamentals of Reading Candlestick Patterns, Single Candlestick Patterns,  Dual Candlestick Patterns, and Triple Candlestick Patterns .    Also You Need To Know Ten Of These Candlestick Patterns . And finally If you want to give your trading skills an edge by relying on pure price action trading/analysis,  instead of fancy forex robots and fancy indicators, get started with What is Price Action Trading? 

Looking to get a leg up on price action analysis,?you need to learn How to Identify Support and Resistance Levels.  And if you want to learn how to interpret trading zones, read up on Identifying Dynamic Support and Resistance Levels. Finally you should know  How To Read Candlestick Patterns using Support and Resistance Levels.

However, if you only want to trade once a month and watch your entry rack up huge profits over a stretch  of several weeks, consult  How to Spot High Probability Trades.  And if you  are  still not sure about  price action trading, find out   Why Price Action Trading Still Rocks . Dont let me stop you from reading the other posts as well. But the  suggested posts above are the most important posts to get  you started.

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P.S. If you want to know everything there is to know about price action trading  Download for free The Ultimate Guide To Price Action Trading by Rayner Teo .This brilliant ebook will change your life as a trader. It sure did mine. And if you want a place  to put your price action trading strategies into practice(Including Trading Trends), and get a simulated feel of live forex trading conditions   before trading live, open a demo trading account with Easymarkets. And if you believe you are ready to trade live on the forex markets, open a forex trading account with EasyMarkets

 

 

 

 

 

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18 thoughts on “Trade Trends With Price Action Analysis

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