Trends - Technical Analysis of Trend Trading

In trading the market, there is one saying that says "the market trend is your friend". This is because the trend has been found to be the most reliable method of trading the markets as compared & analyzed to any other technical analysis method. Traders should therefore aim to base their technical analysis on the market trend of the stock index that they are trading.

The stock market is a great place for speculating on the short term market moves, more than it's for investing in the long term market trends. Traders can also follow & trade the long term trends but this website will mainly focus on day trading methods which are mainly short term trading methods.

For our examples and our we shall use the 1 hour chart time-frame, example below shows where to set the 1H chart on your platform.

To access the 1H chart just click on chart menu as is shown above then click periodicity & then choose the 1 hour chart time-frame.

Once you have selected the 1 hour chart time-frame it's time to learn how to figure out the trend of the stock index that you as a trader are trading, whether it's up or down so that as you as a Stock Index trader can decide whether to open a buy or sell position.

First let us look what is an uptrend and what is a down trend

Upward Trend

The upward trend means the general market direction of a stock index is upwards such as shown below - when the market trend is upwards traders will open buy trades also known as "going long".

Upward Trend - Open Buy Trade or Going Long

Downward Trend

The downward trend means the general market direction of a stock index is downwards as is shown below - when the market trend is downwards traders will open sell trades also known as "going short".

Downward Trend - Open Sell Trade or Going Short

Methods of Determining the Trend Direction

Various methods used to figure out the general market direction of a stock index.

One of the most common methods of determining the market trend in any market is the use of trend-lines. But for index the use of trend lines isn't 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.

Moving Average Crossover Method - Trend Trading

The moving average crossover trading method is a trading method where 2 MAs are used to figure out the market trend direction. A buy or sell trade signal gets generated/derived when there's a crossover between these 2 moving averages. The buy signal is when the two moving averages are moving upward and a sell signal is when the two moving averages are moving downward.

Moving Averages - Buy Signal

The moving averages crossover method generates a buy signal when the two moving averages crossover & start moving upward such as shown below, this is where a trader would have opened a buy trade as this upward trend continued for some time after the buy signal was generated. One would have closed their trade position once the moving averages MAs crossed in the in the opposite trend trend trend trend trend trend trend trend direction.

The second indicator in the setup below was used to confirm this upward trend - The RSI indicator levels above 50 shows prices are moving upward & closing higher than they open.

MAs - Sell Signal

The Moving averages crossover method generated a sell signal once Moving averages crossed each other & started moving downward, downward trend continued moving down as is shown below by the moving averages which continued to move downwards. One would wait until the moving averages MAs cross in the in the opposite trend trend trend trend trend trend trend trend direction to close-out this sell position.

The RSI indicator confirms the sell direction as long as the RSI is below 50 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 market price then you as a stock indices trader can use this as the basis of your decisions when trading the online stock market.

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