Tag: how to identify trends

The Price Action Trading Guide

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The Price Action Trading Guide

When it comes to trading, price action trading is extremely important for you to know. This type of technical analysis trading can be extremely beneficial in terms of making profits.

Sure, price action trading is about engulfing patterns and trading pin bars, but also about reading market sentiment, identifying areas of value, and trading using the path of least resistance. Moreover, price action trading is all about which indicators are the best ones to use.

What we are here to do today is to provide you with a great price action trading guide. We’ve got a myriad of price action trading tips for you to follow in order to be successful.

Price Action

Don’t Stray from the Moving Average

What you need to know is that trending markets usually revert back towards the moving average. When a trend is very strong, the market tends to revert to the 20 moving average. When a trend is moderate, it reverts to the 100 moving average.

If a trend is weak, it will revert to a 200 moving average. The biggest mistake you can make is to start a trade when the market is moving up far away from the moving average.

Moreover, you need to know what the moving average is that is currently being respected by the markets. Keep in mind that when a market is trending strongly, the value of the moving average is lower, and in a weak trending market, the value of the moving average is higher.

Using Support and Resistance Matters

Next important tip when it comes to price action trading is that support and resistance goes a long way in helping you to identify areas of value that you can trade from. Of course, you want to sell high and buy low, but how do you identify what is high and what is low.

Well, support and resistance helps you do just this, because support is an area on the chart when you are looking to buy low, in resistance is an area when you are looking to sell high.

What you also need to pay attention to is dynamic support and resistance which is when support and resistance moves along with the price you usually get dynamic resistance in a downtrend and dynamic support in an uptrend.

You can use moving averages to identify these. Keep in mind that if a market is trending very strongly, a price may not pull back towards the horizontal support and resistance, but back towards dynamic support and resistance.

What is also important to note is that trading support and resistance gives you a very favorable risk to reward ratio. Support and resistance definitely matters in price action trading.

Keep in mind that when you enter a trade in the middle of a range, you never get a favorable risk to reward ratio. However, if you use support and resistance areas to enter trades, it greatly increases your risk to reward ratio.

Longer Ranges Mean Harder Trends

What you need to know here is that when a range expands, the market is sending you a clear signal that it will move in the direction of that expansion.

Traders all around the world can see one arrange is expanding, and many will queue up too short the resistance, while some will trade the breakout.

However, if the price trades above the resistance, shorts will get squeezed, and breakout traders will then hop on that same bandwagon. The point here is that you want to wait for a fairly long time to capture big market moves. This is one of the most important things that you need to know when it comes to price action trading.

Pay Attention to Narrow Range Candles

you now know that the longer a price range is the bigger the trend will be. You can now take this concept one step further and apply it to candle stick patterns. What you want to lookout for a narrow candle ranges.

When there are narrow range candles, you can expect big explosive movements to happen. This is why you always want to pay attention to narrow range candles, because they signify that a big move is about to happen.

Pay Attention to Wide Range Candles Too

You do also want to pay attention to wide range candles, which are formed when there is an imbalance of selling and buying pressure. When you see wide range candles, it generally means that there is hidden support and resistance present. Just keep in mind that you don’t want to use wide range candles alone to trade, but in conjunction with other technical tools.

If You are Trapped, Look for False Breakouts

For those of you who don’t know, false breakout happens when a price breaks either support or resistance, but to only close back in the same range. This is a great time to enter a trade, because you can take advantage of traders who are trapped.

What you want to do is to short the false breakout. You are expecting the trapped traders to cut their trade, which will then further fuel price decline. If you short this break out, it means that you will greatly profit.

Trade with the Trend

You don’t want to become so obsessed with seeing minor market swings that you miss the major price movements. One of the biggest rules here when it comes to price action trading is that you always want to trade with the trend.

Trading against a trend is not the way to go. When you trade with a trend it greatly improves your profit potential. Of course, this means that you first need to know how to define a trend.

Continuing Patterns and Trending Markets

Continuing or continuation patterns are chart patterns like pennants, triangles, and flags. One of the biggest mistakes that you can make is to trade any of these patterns in a range market. These patterns are best traded in a trending market.

Identifying the End of a Trend

For price action trading, the other important thing that you need to know how to do is to tell when a trend is ending.

What you are looking for here is when a respected moving average is broken, if a trend line is broken, or if the structure is broken. If all three happen at once, you can rest assured that a trend is ending.

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Price Action Trading Tips – Final Thoughts

If you follow the 9 price action trading tips that we have provided you with here today, then your chances of becoming a profitable and successful trader will increase drastically. Price action trading can absolutely help put profits in your pocket, as long as you know what you are doing.

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The Best Trend Indicators

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The Best Trend Indicators

As a newbie trader one of the most important things that you will need to learn is exactly how to identify trends, and how to identify the direction of a trend. If you as a newbie trader learn how to identify the direction of trends, your chances of being successful in the world of trading greatly increase. Now, what is important to note is that in order to identify a trend and the direction of the trend, you should be using the best trend indicators out there, and yes this is in part what we are here to discuss today.  

However the problem when it comes to identifying trends and their directions is that one type of trader might see an uptrend whereas another type of trader might see a downtrend. a daily chart could look like there is an uptrend occurring, whereas an hourly chart could look like there is a downtrend occurring. Let’s get right to it and take a look at some of the best trend indicators out there, as well as how to use them, and what you need to avoid doing in order to make money when trading.

Trend

Identifying a Trend

One of the important things to note here is that a trend can look more like an illusion than anything else. The reason we say that a trend looks like an illusion is because depending on what your time frame is like, a trend can look very different. For instance, if you are looking at a 5 minute chart or a 15 minute chart it could appear as though there is a trend in the upward direction.

However, if you look at the daily chart for that very same asset, it might appear as though there is a downtrend occurring. the bottom line here is that when it comes to trends and trend indicators, it really depends on what kind of time frame you are using.

For instance, if you are a day trader, you should be using 30 minute timeframes and lower. As a swing trader you should be looking at one hour timeframes and four hour timeframes, and everything in between. If you are a position trader then you should be looking at 4 hour timeframes and above.

Using Price Action to Identify Trend Direction

Price action is all about reading the structure of a market, the momentum of a trend, and the sentiment to identify trading opportunities. In terms of trading, price action is one of the most important things that you need to learn because it provides you with extremely valuable insight to the market that you are currently trading in. Price action can tell you where traders are placing their stops and when new traders will enter the market.

There are three things to remember when it comes to price action, including that an uptrend consists of higher highs and lows, that a downtrend consists of lower highs and lows, and that arranges contained between the lows and the highs. with all that being said, identifying the direction of a trend when candle sticks are going all over the place can be difficult, so in the next section we’re going to learn how to identify a trend without using candle sticks.

Trend

Identifying Trend Directions Without Candlesticks

When there are tons of candle sticks with really long wet Wicks facing in all sorts of directions, things can be really messy, and it can make it hard for newbie traders to identify the direction of the trend. The simple solution to this problem is to use a line chart. For those of you who don’t know what a line track is, it is a chart that takes the price at the close and then connects closing prices together via line.

This takes the form of a squiggly on your chart that is much easier to read than those candle sticks. It’s pretty simple to read because if the line points higher than there is an uptrend, and if the line points lower than there is downtrend, and if the line is flat then it is arranged. However, with that being said the line tribe only considers the closing price, and that means that you won’t know what the high and low of a specific candle is, and this can be problematic. for identifying entries and exits using candle sticks or bar charts is best.

Using Moving Averages to Identify Trends

For those of you who don’t know, moving average is an indicator that summarizes the past prices, and is then plotted on your chart as a line. Sure, the moving average is a lagging indicator, but it’s not totally useless because it can help you identify the direction of a trend. a very simple technique to use is this, if the price is above the 200 MA line then there is a long uptrend but if the price is below the 200 MA line then there is a long downtrend.

You can also use a shorter term moving average, for instance if there is a strong trend the price will usually stay above the 20 ma line but in a healthy trend the price usually stays above the 50 MA line. Keep in mind that the moving average works best in a trending market. However if there is a range, then the moving average does not work very well.

Trend MA

Using Trend Lines to identify Trends

A trendline is a specific type of tool that you can draw on your charts, and it helps you identify both the strength and direction of a trend. When it comes to drawing trendlines, what you need to do is to look for at least two swing points, and then connect the swing points using a trend line, and then get as many touches on the trendline as humanly possible.

In terms of interpreting a trend line, if the line points higher than it is an uptrend, and if the line points lower than there is a downtrend. What you also need to pay attention to here is the angle of the trend line because the steeper the trendline is the stronger the trend is, and the flattered the line is the weaker the trend.

Trend Trendlines

Trends & Trend Indicators – Final Thoughts

Now that you know what the four best types of trend indicators out there are, you can start easily identifying both the direction and the strength of a trend, with the hopes of you making consistent profits on a daily basis.

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