Index Trends - Trading Analysis of Trend Trading
In trading the market, there is one saying that says "the trend is your friend". This is because the market trend has been found to be the most reliable strategy of trading the markets as when compared and analyzed to any other technical analysis method. Traders should therefore aim to base their technical analysis on the market trend of the Indices that they are trading.
The market is a great place for speculating on the short term market moves, more than it is for investing in the long term market trends. Traders can also follow and trade the long term trends but this website will mainly focus on day trading methods which are mainly short term methods.
For our examples & our we shall use the H1 chart time frame, the example below shows where to set the H1 chart on your platform.
To access the H1 chart just click on chart menu like is shown above then click periodicity and then select the H1 chart time-frame.
Once you have chosen the H1 chart time frame it is time to learn how to figure out the trend of the Indices that you are trading, whether it's up/down so that as you as a Stock Index trader can decide whether to open a buy or sell trade position.
First let us look what is an uptrend & what is a down trend
Upwards Trend
The upward market trend means the general market direction of a Indices is upward as is illustrated below - when the market trend is upward traders will open buy trades also known as "going long".
Upwards Trend - Open Buy Trade or Going Long
Downward Trend
The downward trend means the general market direction of a Indices is downward as is shown below - when the market trend is downward traders will open sell trades also known as "going short".
Downward Trend - Open Sell Trade or Going Short
Methods of Determining the Trend Direction
The different methods used to figure out the general market direction of a Indices.
One of the most common methods of determining the trend in any market is the use of trend lines. But for Indices the use of trend lines is not the best method therefore we shall not look at this method on this tutorial instead we shall look at the moving average crossover method which is the best method to figure out the trend direction of Index.
MA Cross over Method - Trend Trading
The moving average cross over trading strategy is a trading method where two moving averages are used to figure out the market trend direction. A buy/sell signal is derived & generated when there is a cross over between these two moving averages. The buy signal is when the two moving averages are moving upward & a sell signal is when the two moving averages are moving downward.
Moving Averages - Buy Signal
The MAs cross-over method generates a buy trading signal when the2 moving averages crossover & begin moving upward as is illustrated below, this is where a trader would have opened a buy trade as this upwards trend continued for some time after the buy signal was generated. A trader would have closed their trade once the MAs crossed in the opposite trend direction.
The second indicator in the setup below was used to confirm this upward trend - The RSI levels above 50 shows prices are moving upward & closing higher than they open.
Moving Averages - Sell Signal
The Moving averages crossover method generated a sell signal once Moving averages crossed each other & started moving downward, the downward trend continued moving down such as shown and shown below by the moving averages which continued to move downward. A trader would wait until the MAs cross in the opposite trend direction to close-out this sell trade position.
The RSI confirms sell direction as long as the RSI is below 50 level it shows prices are moving lower & closing lower than where they opened.
Once you have learned how to figure out the trend direction of the price then you as a stock indices trader can use this as the basis of your decisions when trading the online market.
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