In this short video we're going to take a look at another simple trading
strategy, looking at the idea of trading with the trend.
Hello I'm David Jones from Capital.com and this is another in our series of short videos on simple
trading strategies. Trading doesn't have to be complicated and I think if you've
ever done any research, or reading, you will have seen the phrase "the trend is
your friend". Now trading in the direction of the trend means you're trying to put
the odds in your favour. So how do we identify these trends, and where are the
good points - the low-risk points - to get in on a trend? Let's take a look at the
charts. Let's take a look at the idea of trading with the trend. I thought we'd
look at that the Dow Jones, the US 30, index, a very popular market during 2018
and look we see the start of a trend here and the definition of an uptrend we
have higher highs and higher lows and the market starts to move higher, let's
just pick up on it with our drawing tool. I'll scroll down and pick trend.
So here's our simple trend line - the assumption is whenever the market sells
off, we're looking for this trend line to hold. So we need two points to draw the
start of the trend line and it's the third move here that confirms it. It comes
back to here, doesn't get quite back to the actual level but you know this is a
real market and it doesn't work perfectly all the time - where it's going
to come down to the exact spot, but the assumption is while we're above the
trend we're looking to be a buyer. So dips are viewed as buying opportunities.
Let's just pick up on this sharper trend. So you can see here it's accelerated, so
again we've got a couple of points and it's the third point here that confirms
it. So at the moment, at the time of recording the Dow, is trading around
about twenty-six-thousand five-hundred. If it's sold off towards twenty-six-
thousand, it's still above the trend. So that weakness would be viewed as a
buying opportunity. So in an uptrend we're looking to buy - let's take a look
at downtrends. So here's the Pound-US dollar starting
in May 2018. Let's again just pick up on our trend here off these highs. So in
a downtrend we're gonna pick up on the highs - of course in an uptrend we pick up
on the lows. So again the assumption is every time we see the market come back
to the trendline in a downtrend, we're expecting it to run out of steam, and
this worked pretty well in holding the market level - we had that rally in late
July up towards the 132 level and then it turned and fell heavily and it's here
we get the trendline break. We're going to talk about this in another video but
for now when we're looking at the trend. We're just looking at following that
trend, using the trendline as a simple guide as to where we're expecting the
market if it rallies in a downtrend to run out of steam, or if it falls in an
uptrend to bounce back, and it's a really simple method. You see these trend lines
over all sorts of different timeframes. Whether you're looking at daily, weekly
or short-term charts. Such as hourly or 10 minutes. So it doesn't work all the
time but it can help you trade with a momentum of the market. You're putting
market sentiment on your side, so whatever time frame you're trading, it
normally makes sense to try and trade in the direction of the trend and we can
identify that using trend lines. Whether the markets been rising or whether it's
been falling. Like I say it doesn't work all the time, which is where stop losses
come in: to manage our risk, but the idea is that if we lock into a trend
hopefully we'll end up with profits that do end up being bigger than our
potential losses. We'll wrap things up there as usual don't forget there's a
whole host of other content that we have out there on our youtube channel: trading
strategies, looking at markets such as currencies and indices. To never miss out
just make sure you're subscribed by clicking the subscribe button down there.
Click the alarm bell notification and you get automatic notified every time we
upload a new video, but for this short introduction on trend trading we'll
leave it there. So for me David Jones and Capital.com
good luck with your trading.