Top tips for newcomers: how to recognize trends
There are a lot of quick ways to get rich when you enter the trading market. Today we are talking about the most important of them – identification of trends and choosing it as the main direction. Everybody knows these popular sayings that we should hold in with trends, trade with them and always go in the same direction with trends. But why this approach is the best and all these words are not just empty phrases? A trend is a thing that determines where the market will go, the prices will likely follow these ways and directions in future. That is why it so important to understand the tendency on the first stage of its establishment. It does not matter to which side it is moving – up, down or sideways, the goal is to see it before all other traders will. Auto trade systems now are well-developed so they have special rules at which time to open and a trading position and exit a trade which is losing locking the potential profits. Recognizing trends is the first thing you should do for successful trading.
Upper and lower points
The most popular approach which is used by many traders is the visual examination. An uptrend is determined by maximum points at the top and at the bottom which come in a sequence, however, a downtrend can be recognized by lower tops and bottoms. There is another direction – sideways, it is when upper and lower points are equal and it means a trendless market. Unfortunately, such method sounds easy only for pro traders, while beginners find it very difficult to find the trends, some time is needed for practice. There is one more way to see the trend before others – using and attaching technical tools which were created for understanding the moving direction of the trading market. The basis for such tools is usually inductive statistics, by using it implementers make some indicators and oscillators.
As these tools seem hard for newcomers and they do not use them there is a problem because mentioned tools like indicators and oscillators help very much for achieving trader’s goals. To get rid of such tendency and to prove that it is not hard we will show you the most popular indicators for recognizing trends.
The first indicator in our top is very simple and everybody can understand how it works. It is called “Moving Average” and it is based on the following rule: there is a Moving Average curving line, which determines everything and when prices are above it means you can wait for an uptrend when prices fall down and they are below this line there will be a downtrend.
Another one is not difficult too – MACD (A Moving Average Convergence Divergence indicator). To explain it simply – it is used for showing the difference between exponential moving averages, usually, there are two of them. In other words, they give a special attention to the most recent prices. It is a usual oscillator which does the same thing as others – shows the new trend when the zero line is crossed. A downtrend can be defined typically – the prices have fallen when negative MACD reading and the opposite trend can be seen after positive MACD reading.
Another tool – Momentum, is based on measuring the difference between past and new prices and the speed of prices increasing or decreasing. Equilibrium limit here is on 100 and when the oscillator crosses it while prices are moving fast – you have a positive trend, the prices are rising. Vice versa, it prices move slowly and oscillator goes below the line it shows a downtrend.
So, how to be absolutely sure that you have a downtrend or prices are rising? The combination of all three mentioned indicators can make you sure that everything goes right. Just compare the directions of MACD, Momentum and Moving Average. Are they the same? Congratulations! You can be confident you will not make a mistake as the trading is more disciplined.