What is Trend Trading?
Trend trading is a strategy that aims to capture gains by analyzing an asset's momentum in a particular direction, entering positions in the direction of the established trend.
Trend Trading Explained
The adage 'the trend is your friend' is the core of trend trading. Traders identify the trend using moving averages, trend lines, and higher timeframe analysis. Positions are held until the trend shows signs of reversal. Trend trading requires patience to hold through pullbacks and the discipline to cut losses quickly when the trend breaks.
Real-World Example
A trader identifies that the 50-day moving average is above the 200-day moving average and the stock is making higher highs and higher lows. They buy on a pullback to the 50-day moving average and hold until the trend structure breaks.
Related Terms
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