Many expert financial strategists recently gave their opinions on what to anticipate in the precarious fluctuations in the market. Traders need to decide when to get into or stay out of the markets and when to hold on or let go of a favourable trade. Good trade is never really about getting that one time jackpot because of sheer luck but rather a pipeline that should constantly flow. Understanding the concept of a trendline is the foremost important consideration traders should know before trading. The basics of understanding the line trend are quite easy. An uptrend is simply higher highs or lows. On the other hand a downtrend means seeing lower lows and lower highs.
In a downtrend, it highlights the highs which are the most important aspect. Consequently in an uptrend it is the lows that matter. Some analysts say that in a downtrend the lows form a double bottom, but many traders would simply disregard them and consider a double bottom irrelevant. The majority of traders on the other hand find more significance on the “highs” of the patterns and not the trendlines.
Following the guidelines on the use of trends, it is the overall trend that usually gives traders a bias position. In this case, traders should only trade long positions in uptrend likewise only trade short positions in a downtrend. The urge to trade in and out of markets seems like an impulse many novice traders must learn to control. It is important to learn to suppress trading on a whim. Traders should always trade in the direction of the favourable trend.
Traders should bear in mind that trading is never fixed to one particular trend because there will always be multiple time-frame trading patterns at any given hour. There is what many call trends within a trend by which in a span of 5 to 30 minute timeframe corrections appear and disappear relatively fast. For instance, there might be corrections in price action before resuming its trend. If a downward trend with a correction to the upside pattern is seen then the decision is to go short and if the correction falls in line with the trend then don’t rely on trade corrections.
The most important thing traders should remember when facing an uptrend is to expect lows to remain and new highs to surface therefore making it a lot easier to trade using a 1:2 risk-reward ratio. When prices don’t seem to generate higher lows it is then high time to exit the market. By utilising several time frame traders can mix short and long term trends to hold on to it as long as possible even if the changes in trends are erratic.