Trend Trading and Swing Trading

Taking The Best From Trend Trading and Swing Trading

Trend trading is a trading approach that offers the potential to make larger profits by taking advantage of large market movements. There are two main concerns associated with trend trading; either the market is trending up (bull trend) or trending down (bear trend). In order for trend traders to profit, it is important to correctly identify the trend before a trade is made.

When it comes to trend trading, once a trade is placed, the trend trader will usually stay in the trade until it appears that the overall trend has changed.

Trends occur on different time frames and can be seen on various time frame charts. A trend trader, being more a long term trader where trades typically last a few weeks or more, will likely determine the trend from analyzing the daily time frame chart or larger. Minute charts can be used for fine-tuning entries, they will definitely not be used to determine trends.

The chart time frame used is very important for trend traders. If the trend is being determined on the weekly chart, then the weekly chart should be used to determine when the trend has ended as well. By doing this, the trader does not exit the weekly trend or the larger trend simply because the trend has changed on the daily chart of the lower timeframe.

There are many counter-trend moves that occur in a complete trend move. This is usually seen on the lower time frame charts with respect to the time frame used to determine the trend. For example, if the weekly chart is used to determine the bull trend in the SP500 market, then there will be movement against the bull trend which will be easy to see on the daily time frame chart. Trend traders will usually stay in the trade even when the market moves against the position, as they are expected to recover quickly if the trend is still intact.

Trend traders often use indicators such as moving averages to determine when to enter and when to exit. AKDSEO merupakan agency digital marketing yang fokus melayani jasa Backlinks dan Link building website, termasuk di dalamnya Jasa Menaikkan DA ( Domain Authority) For example, trend traders can buy when the 50-day moving average is greater than the 200-day moving average, and sell when the 50-day moving average is below it.

For most traders, staying in a trade when the market is moving against the direction of the trend is difficult. You really have to stick to your guns and avoid reacting to the market as the market moves to erode your accumulated profits if you want to be successful as a tight trend trader.

Another type of trader to consider is the Swing Trader. Swing traders usually trade the daily time frame or lower (minute chart). Swing trading is all about following the most likely current market direction. For new traders, swing trading can be a more effective approach due to the shorter trading period and usually less exposure to risk capital. Swing trading is considered by many to be an easier and less stressful way to enter the market.

Swing traders will usually go long when the short term market confirms a swing bottom and wants to move up, and go short when the market confirms a swing top and wants to move down. So while trend traders can hold long positions based on the weekly bullish trend, swing traders can buy or sell during the same period the market is currently moving in lower time frames.

With trend trading, the cons are obvious. You should allow the possibility of a large move against your position when the trend is in the counter-trend phase. With swing trading, the cons are also obvious. While the market as a whole is trending in one direction, swing traders will sometimes trade against this trend which often poses more risk than trading with the overall trend.

Therefore, when considering the negative aspects of trend trading and swing trading, why not use the best of both?

To do that, it is important to determine in advance the direction of the overall trend as trend traders would. So if you do it based on the moving average as in the example mentioned earlier, then all your trades should be in that direction only. Therefore, if the trend is bullish, take a long position from the swing bottom and look to exit the swing top rather than short.

A few years ago I wrote a training document called Guidelines that does as I have described in this article. We first identify the current weekly trend based on the recent formation of the weekly swing top or bottom in relation to the previous weekly swing. Once the direction is determined, we look to only enter the market by ‘following the trend’.

While swing traders will typically apply two or more indicators in an attempt to determine when a short term swing occurs, I like to use a mathematically calculated ‘turn date’ which gives the date when this swing is most likely to occur. Once this is known, we only allow the market to confirm swings signaling a trade entry.

Notice these words on page 11 of the book “How to Make a Profit from Trading Commodities” by W. D. Gann.

BEST WAY TO TRADE: Most money is made in swing trading, or in long pull trades, i.e. following a certain trend during an up or down trend…Wait for a definite indication that the trend is going up or down. lower, before you take a position for a long pull trade…get out when you get a definite indication that the market has reached a turning point and the trend is changing.”

So to get the most out of your trades and to keep your risk as low as possible, look to determine the overall trend first and then only trade swings in that direction.