Trend trading

Trend traders create strategies that are developed based on analysing the trends of an asset. A trend following strategy is based on the expectation that the direction of price will continue in its current form and the trend will not reverse. This means that if you are trading an uptrend, you could continue to hold your long position and watch the asset increase in value, while you could choose to sell your asset if the trend is going downward.

Below is an example of an uptrend, which is when the price rises in value. Traders following the trend pattern would attempt to gain from the movement by entering a long position as the price level increases. When the trend is making higher highs and higher lows, then it is showing an uptrend.

Short-term traders such as day traders​​ like to keep their eye on trends that arise throughout the day in short periods in order to try and benefit from short-term price fluctuations. There are a variety of popular strategies that intraday traders like to use, such as scalping, and there are also separate intraday trend following strategies.

Long-term trend trading involves holding on to a position for longer periods of time, often that is in an uptrend. This could be a few weeks, months, or even years. Long-term traders make decisions based on in-depth fundamental analysis that predominantly focuses on how the market will look in the future. When it comes to trend analysis, long-term traders are less concerned with the daily trend fluctuations and concentrate more on the longer-term trend and its influential factors.

When developing trend trading strategies, traders can benefit from a wide range of technical indicators. Below are a few examples of indicators that are popular amongst trend traders and can be applied to trading charts.

In a scenario when a price trend shifts from an upward to a downward direction, or vice-versa, it is called a trend reversal. Traders can seek to gain from this by attempting to get out of positions before the shift manifests, or as early as possible if the movement has already begun. This is called trading trend reversals, which is also known as ‘counter-trend trading’.

Counter-trend trading is a technique that traders use in order to predict a trend reversal and subsequently trade against the current trend. Generally a medium-term strategy, counter-trend trading is a method of swing trading​​ as it involves envisaging a potential reversal, or a ‘swing’, in the trend.

This trading method entails the analysis of trend patterns and purchasing or selling an asset that has faced a bullish or bearish shift. This is done in the hope that the trader would be able to buy or sell it back at an advantageous price, due to a higher or lower trend shift. Traders who utilise the counter-trend strategy tend to recognise the benefit of smaller gains and understand how to prevent losses if their trend expectations do not actualise.

In summary, trend following is a popular approach in trading that can be practised with both short and long-term strategies. You can register now for a demo account or live account to trade trends when spread betting or trading CFDs on our Next Generation platform. We offer over 10,000 financial instruments on our platform, including major forex pairs, stock indices and popular shares.