Powerful Trading Strategy To Trade In A Trending Market



Finance Guru Speaks: This article will guide you on how to trade in a Trending Market.


There is a very old saying in the Stock Market - A Trend is your Friend!

Share Market moves between two zones:-
1. Trending
2. Range-bound

Powerful Trading Strategy To Trade In A Trending Market

I will cover how to trade during Range-bound Market in a separate article.

Coming back to the article topic -

How to trade in a Trending Market?

In order to trade based on Trending market conditions, you should be able to first identify whether the Market (Stock or Index) is really Trending or not.

Check the Chart:
A Trending Market can be either in an Uptrend or a Downtrend. This can easily be identified via Charts.

Uptrend: Market is constantly making new highs and moving in an upward direction. When the market is in an Uptrend, it's known to be Bullish where Buyers are more aggressive than Sellers.
Trending Market - Uptrend
Trending Market - Uptrend
Downtrend: Market is making new lows and moving in a downward direction. When the market is in a Downtrend, it's known to be Bearish where Sellers are more aggressive than Buyers.
Trending Market - Downtrend
Trending Market - Downtrend

Check the value of the ADX (Average Directional Index) Indicator: 
If the ADX value is more than 25, we can call the market Trending. However, it can be either Bullish or Bearish.

Now, as you can clearly identify whether the Market is Trending or not, you are in a better situation to apply your Trending Market Trading Strategy.

Sharing the below simple yet effective Trading Strategies for Trending Markets:-

1. Based on Support/Resistance
2. Based on Moving Average

Based on Support/Resistance

During Uptrend: Market moves in an upward direction. During regular profit bookings, the price comes back to the previous resistance level (which is now acting as support). At this Support level, Trend following traders again start buying in the anticipation of continuity of the Uptrend.

Once you identify the previous Resistance level which is now acting as Support, you can place a BUY order once the price takes support and starts to move upwards with good volume.
Uptrend Market Trading Strategy based on Support and Resistance
Uptrend Market Trading Strategy based on Support and Resistance

During Downtrend: Market moves in a downward direction. During regular value buying by Swing Traders, the price comes up to the previous Support level (which is now acting as resistance). At this Resistance level, Trend following traders start selling in the anticipation of continuity of the Downtrend.

Once you identify the previous Support level which is now acting as Resistance, you can place a SELL order once the price gets resistance and starts to move downwards.
Downtrend Market Trading Strategy based on Support and Resistance
Downtrend Market Trading Strategy based on Support and Resistance

Based on Moving Average

During Uptrend: Market continues to make new higher Highs. Due to profit bookings, the price takes a downward move and normally gets Support from a Moving Average. The Moving Average can be 5MA, 13MA, 20MA, 50MA, etc. You can plot the MA line with different values and find out which MA line (e.g. 20MA) is giving support to the price by looking at the recent price movements.

Once you identify the MA value where the price is taking the Support regularly, you can place a BUY order when an Uptrend Stock/Index falls back to this MA line, takes Support, and again start to move in the original Uptrend direction with good volume.
Uptrend Market Trading Strategy based on Moving Average
Uptrend Market Trading Strategy based on Moving Average

During Downtrend: Market continues to make new lower Lows. Due to value buying, the price takes an upward move and normally gets Resistance from a Moving Average. The Moving Average can be 5MA, 10MA, 21MA, 100MA, etc. You can plot the MA line with different values and find out which MA line (e.g. 50MA) is giving resistance to the price by looking at the recent price movements.

Once you identify the MA value where the price is getting Resistance regularly, you can place a SELL order when a Downtrend Stock/Index moves up to this MA line, gets Resistance, and again start moving down in the original Downward direction.
Downtrend Market Trading Strategy based on Moving Average
Downtrend Market Trading Strategy based on Moving Average

Conclusion:

In a Trending Market :
  • Buyers should Buy High and Sell Higher. During Uptrend, you should always try to go Long or try to find buying opportunities.
  • Sellers should Sell Low and Buy Lower. During Downtrend, you should always try to go Short or try to find selling opportunities.

In future articles, I will cover additional aspects of Trading and Investing. Keep Reading!


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Finance guru Speaks

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