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The Concept of Trend and Trending

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Words: 634 |

Page: 1|

4 min read

Published: May 19, 2020

Words: 634|Page: 1|4 min read

Published: May 19, 2020

The strength of the trend can be measured in several ways, some using technical analysis, and some using basic analytical methods. In terms of technical analysis, and in particular the trendline, there are two commonly accepted rules:

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  • The longer the trendline is held (not penetrated), the more reliable they are.
  • Trendlines in higher time frames will be more reliable.

One thing to keep in mind is that the longer the trend, the higher the volatility. Take for example a rising trend to explain this statement as follows:When the bull trend is clearly established, it will attract more participants because of the belief that the trend will continue, while some other traders due to psychological instability or that the price has " too high "and begin to profit. Such orders are continuously pushed into the market as the volatility increases. However, the buy order is still overwhelming because most still believe that the market will continue to rise, and prices continue to be pushed to a period called "bubble ".

Finally, professional players exit the market for a reversal; Next is the number of interest is low, the number of breakeven, the number of losses cut away from the market caused a strong collapse. The chart below, namely the circle is the "bubble" phase.

Applying the theory to trading, you need to pick a trend that has been formed in a relatively clear manner with specific price patterns before entering the order. You should look for trends with low volatility, as it shows the stability of the trend and the potential for further growth. Peaks near the lows may be a good opportunity for you to take profits, but if you have not been ordered, then it is a disadvantage because the market is very close to the "bubble".

The uptrend and the downward trend

The uptrend is the case when there is a consensus among market participants who want to push prices up. In other words, in the uptrend phase, the volume of orders of those who want to buy always overwhelms the volume of orders of those who want to sell.Ideally, prices will continuously create higher peaks, higher troughs. However, in reality it is not so simple.

Looking at the chart above you can see a clear uptrend. Prices have held up momentum (following the trendline) after 3 times the sell side overwhelmed. However, when trading realistically, notice the circle, the buy side can not create higher peaks, the trendline is broken, and most traders will find that the up trend has come to an end. But then the price went up, and as the previous theory mentioned, we can recognize a "mini-bubble".With a downward trend, the volume of orders of those who want to sell is always overwhelmed by buyers and prices are pushed down to the lower levels.

In the example above, you can see the strong movement of the USDJPY pair at the end of the trend. The price was exposed four times with the trend line, in the circular area, ie after the third contact price has created a mini-bubble, the price is pushed down with strong force, to the price 112.0 the buy side. At the start of the day, we started to counterattack strongly, bringing prices closer to the trend line. And theoretically, at times of high volatility, it is likely to have come to an end. Indeed, the price then fluctuated sideways before breaking the trend line and ending the downtrend.

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Note: The explanations for these price actions are irrelevant of low or high time frames. For example, the M15 price action with the trendline daily line will be similar to the H4 price action with the trendline weekly. Of course, the trendline in the higher time frame will be respected and be influenced by the basic information, but purely technical, they are not much different.

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The Concept of Trend and Trending. (2020, May 19). GradesFixer. Retrieved July 15, 2024, from https://gradesfixer.com/free-essay-examples/the-concept-of-trend-and-trending/
“The Concept of Trend and Trending.” GradesFixer, 19 May 2020, gradesfixer.com/free-essay-examples/the-concept-of-trend-and-trending/
The Concept of Trend and Trending. [online]. Available at: <https://gradesfixer.com/free-essay-examples/the-concept-of-trend-and-trending/> [Accessed 15 Jul. 2024].
The Concept of Trend and Trending [Internet]. GradesFixer. 2020 May 19 [cited 2024 Jul 15]. Available from: https://gradesfixer.com/free-essay-examples/the-concept-of-trend-and-trending/
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