Entry Strategies - Trading the Trend
When it comes to entering a trade, it goes without saying that timing is everything. But is there really that one right moment in time? Truth be told, as often in trading, it depends. On your strategy, your trading style, and many more factors. But not to worry, there are some principles to stick to when it comes to making your entries. Let’s take a look at how we come about trading a trend!
Simply put, to follow trends successfully, one has to identify a trend, watch out for a pullback and trade the breakout. Doesn’t sound too simple? Let’s break it down!
1. Understanding Trend Movements
Generally speaking, a trend can move upwards, downwards and laterally. The upward move is the bullish (positive) price moment, the downward one is the bearish or negative price movement, while lateral is range-bound between a floor and a ceiling. It’s vital to keep in mind that you always want to enter a trend as early as possible to maximize your profit!
2. Identifying a Trend
Capturing the market momentum is generally about identifying a trend over a period of time via the drawing trend lines. For instance, when we observe rising slopes, the market is moving up and we are experiencing an uptrend. For many investors this would mean going bullish until the uptrend comes to the end. When we observe downward sloping - vice versa.
3. Watching the Pullback
A pullback means the time when a market movement in a particular direction changes for the opposite one. This is the moment to keep mind, as it lets you know the time to trade is close.
4. Trading the Breakout
Breakout - when the trend resumes its original direction. This is when the short term momentum agrees with the longer term trend, and the time to enter has arrived!