Trading Trends The Less Stressful Way

April 18, 2016

Trend trading for some traders can be a most satisfying trading experience. This is because trends once discerned are relatively easy to trade with. All that is required of the trader is for him to decide when the trend will end and hence exit the market. For another group of traders, trend trading can be a very trying experience. This is because trends do not happen as often as most people would like. And when they do occur, the second group of traders usually end up getting sucked into trading the trend to the extreme and often with disastrous results. To help you avoid this stressful scenario, below is a technique which you can employ to help you get the most out of your trend trading experience.

Multiple Time Frame Charts in Trend Trading

While most traders tend to use charts with different time frames to help them identify the support and resistance level, it should be noted that the same concept can also be used for traders in trend trading.

trading trends

The charts above are the charts for the EUR/USD. The one on the right is the chart with the 5 minutes time frame while the one on the left is the chart with the 60 minutes time frame. This time frame chart combination is ideal for those who are day trading. Those who want to trade with a longer time frame can also use charts with the daily and weekly combination.

First Buy Trading Signal

Let’s look at the hourly chart. At point A, the market makes a high and then starts to fall sharply to point B before tapering off during the close of the Asian/European Trading Session. At the start of the U.S trading session at point C, the market price starts to pick up in conjunction with the trading volume.

With the 5 minute chart, we can see that buyers are pushing up the trading volume for point B onwards trying to control the market. The market reacts with a slight dip in prices from point C onwards. We can see from the 5 minutes chart between point C and point D, there is a struggle between the opposing forces in the market with the buying pressure winning out in the end and pushing prices to a new high to point E.

Scenarios like this are actually quite common. The reaction at point D on the 5 minutes chart actually depicts sellers giving up and this is the trading signal for the first buy opportunity for the trading day.

Most traders regardless of whether they are beginner traders or experienced traders are aware of the concept of using multiple time frames in market analysis especially when trying to get the big picture on trends. In fact, this method of using the charts is often one of the very first things that they learn in their trading education. However the trading strategy that we discussed above represents an alternative way of how we can use multiple time frames in our charts.

Most traders because they have never been taught how to look at multiple time frames from a different

angle, often miss out the clear trading signal which these charts together with the trading volume can tell us. As a result, they miss out on the opportunity to enter the market at the right time and hence lose the opportunity to maximize their profit potential from the onset.

Regardless of whether you are a day trader or swing trader and if you are looking to trade trends, always ensure that you use charts with 2 different time frames not just to get the bigger picture on trends but also to help you to identify the first buy opportunity. And remember also take note of the time for the different trading sessions as this will give you a clue of what causes the rise and fall in the trading volume.