Trend Trading Strategy

By | February 5, 2016

trend trading strategyTrend trading strategy is most recommended strategy for all traders. It is important to match your strategy with the appropriate market condition. Following trends can prove to be very attractive since a bias has been witnessed in that particular market. In this article we show how traders can begin to develop their own trading strategies.

The future is uncertain, so are price movements of traded assets on the markets. There is no perfect strategy, the one that would yield positive result every time. But if trader is well informed and understands basic economics he can make profit on most of trades. As markets are unpredictable, the still show certain trends from time to time. Trends develop for a reason. It can be due to a shift in an economy’s fundamentals. E.g. FED decides to raise interest rates and starts new trend of a strong dollar. Trends show bias that has existed on the chart; while future is unpredictable this bias may continue. In December 2015 FED has raised interest rates.  This started new trend that will almost certainly continue until March 2016, when Fed will make another decision. Depending on this decision trend may continue or it may reverse. Those who are long on the market already predicting that in March FED will raise interest rates again and are making their trades according to that.

Trend trading strategy is basic and simple strategy, yet it is very popular even with more experienced traders. There are three possible situations. Price of traded asset may rise; decline or it can be flat. If the trend line shows that the asset is going to rice, choose call. If the trend line shows a decline in the price of the asset, choose put. If there is a flat trend line and a prediction that the asset price will go up, the No Touch Option is recommended.

How to build a trend trading strategy?

Most common way is to use the moving average indicator. If price of asset is below moving average this means trend is down, so you make a put. If price of the asset is above moving average this means trend is up and you need to make a call. The trend is your friend… until it ends. Always keep that in mind. Bias has been exhibited in the market and it may continue, but there is no such thing as certainty when it comes to trends. That is why it is very important to stay informed and continuously learn about options trading.