Swing Trading - How Do You Identify The Trend?
Nothing is more important than the trend if you are swing trading
. Always trade with the trend. Even before swing traders open a trade, they always make sure that they have identified the trend correctly and are only trading with the flow of the trend and not against it. Herein lies the problem. While it may be easy to say, you should only trade with the trend, answering the question as to how you can correctly identify the trend is a much more difficult question. This is possibly one of the most frequently asked questions by new traders. How can you correctly identify the trend in the market? Is there any reliable or proven way to identify trends?One of the most widespread ways of trend identification is through the use of indicators. Indicators can make analysing markets much easier and faster. Thanks to the improvements in computing power, today there are an extremely vast number of indicators available to a trader that could be used to identify the trend. However, of all the indicators available the most reliable and perhaps proven is that of using simple moving averages. Simple moving averages are some of the oldest indicators used by traders. In a way it makes sense that they are still used today for identifying the trend. The most popular method of identifying the trend using simple moving averages is to place the 150 or 200 day simple moving average indicator on a chart. When price is above the simple moving average (SMA), then the trend is considered to be up. Likewise, price below implies the trend is currently down. This is an extremely simple yet widely used method found amongst corporate and bank traders.
If indicators aren't your style, price action is another widely used and extremely popular way to identify the trend. Price action is the analysis of the market using nothing more than price (typically through the use of Japanese candlesticks). When price is in an uptrend, price will make higher highs and lower lows. This zigzag movement is common as price continues up and moves higher and higher in the market. When price is moving down in a downtrend, price will make lower lows and lower highs. Using price action to analyse the trend, much like the use of simple moving indicators, may also sound basic and simple, yet it is possibly one of the best methods of identifying the trend. The biggest flaw or difficult with using price action to identify the trend is that it can be rather subjective. One trader may consider price to be moving up and another down. Price action is subject to being interrupted differently by different traders. It can take a lot of practice and screen time for a trader to familiarize themselves with their market and adjust to how price typically moves.
For any trader, be it a swing trader or day trader to trade effectively, they must first be able to correctly identify the trend. This is much easier said than done and many new traders completely ignore the importance of learning how to identify the trend before they embark on their trading career. The two most popular methods of trend identification are through the use of simple moving averages, usually the 150 or 200 day, and price action. Make sure that you know the trend before you place any trades, regardless of your style of trading or the market you trade.
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