Trend trading strategies assume that a security will continue to move in the same direction as it is currently trending. Such strategies often contain a take-profit or stop-loss provision in order to lock in a profit or avoid big losses if a trend reversal occurs. Trend trading is used by short-, intermediate-, and long-term traders.
Traders use both price action and other technical tools to determine the trend direction and when it may be shifting.
Price action traders look at the price movements on a chart. For an uptrend, they want to see the price move above recent highs, and when the price drops it should stay above prior swing lows. This shows that even though the price is oscillating up and down, the overall trajectory is up.
The same concept is applied to downtrends, with traders watching to see if the price makes overall lower lows and lower highs. When that is no longer happening, the downtrend is in question or over, and the trend trader will no longer be interested in holding a short position.
Traders use both price action and other technical tools to determine the trend direction and when it may be shifting.
Price action traders look at the price movements on a chart. For an uptrend, they want to see the price move above recent highs, and when the price drops it should stay above prior swing lows. This shows that even though the price is oscillating up and down, the overall trajectory is up.
The same concept is applied to downtrends, with traders watching to see if the price makes overall lower lows and lower highs. When that is no longer happening, the downtrend is in question or over, and the trend trader will no longer be interested in holding a short position.