Trend trading strategy has always been a safe method for retail traders. Those who have established themselves in the retail trading industry, love to trade with the major trend. They know very well that placing the trades against a well-established trend is more like catching a falling knife. It requires extensive skills to trade the major trend like a professional trader. Unless you have years of trading experience and strong analytical skills, you will never make any profit by trading the key reversal.
You might be thinking that trading with the major trend is a very simple task. Some traders often think trend trading strategy is the most basic trading strategy.
After trading the market for a few months, they realize the trading method is one of the most complex tasks in the investment business. Now we are going to give you some amazing guidelines which will allow you to trade with the major trend like a pro trader.
Drawing the trend line
You need to be extremely careful while drawing the major trend line. Never think you will find a reliable trend line by using the minute time frame. Chose the daily or the weekly time frame to find the valid trend line. While connecting the key swings in the market, make sure you are not forcing the points to be in line with the trend line. Take your time and use a demo account to learn the proper way to use the trend line. Once you have drawn the trend line, assess the position of the price. If the price trades above the trend line, you should be looking for buying opportunities only. On the contrary, if the price trades below the trend line, look for the selling opportunity.
Using the 200-period moving average
Some of you might get confused after drawing the trend line. They can easily solve the problem by using the simple 200-period moving average. The slope of the moving average will give us an indication of the direction of the trend. Read more about the moving average at Saxo and learn to use them effectively. Once you know its function, you will realize why professional traders rely heavily on this indicator. The moving is also going to act as a dynamic support and resistance level. If the price tests the moving average from a higher level, the moving average will act as strong support. On the contrary, if the price tests the moving average from a lower level it will act as a resistance.
Using the candlestick patterns
The professional traders never place pending orders at the trend line support and resistance level. They wait for the price action confirmation signal. Using the candlestick patterns in the CFD market might seem a tough job but you can easily learn the basic candlestick patterns by using the demo account. Once you learn about the reliable candlestick pattern, you can easily trade the major trend line with high precision. Moreover, you can set tight stop loss, and thus you can earn more money with a great level of ease.
Analyze the risk to reward ratio factor
Before you take any trades at the major trend line, you should analyze the risk to reward ratio factor. If the risk to reward ratio factor is less than 1:2, it would be wise not to take the trades. A valid trend line should give you an excellent risk to reward ratio trade setup. For instance, professional traders usually execute their trades with a 1:5+ risk to reward ratio. If you find things hard, chances are high that you are doing the data analysis in the lower time frame. Move back to the higher time frame and you won’t have to face any problem with the risk to reward ratio factor. Focus on simple logic and try to trade with low risk. Never take your trades with a negative risk to reward ratio factor as it will ruin your career.
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