Learn How to Trade the Trends

LONDON, January 27, 2012 /PRNewswire/ --

'The trend is your friend' is a common saying among traders, but many traders still cannot resist trying to buy at what they perceive to be the bottom and selling at the top in the hope of high gains. City Index explains how their trading platform tools allow you to enter and exit the markets and trade with the trends.

Looking back, some of tops and bottoms could be traded for excellent profits, while others would be avoided for trade entry. However, when the markets are moving in real time, one of the simplest trade concepts comes from the popular phrase 'the trend is your friend', which encourages traders to trade with the current trend and avoid entering trades that go against the current trend.

Swing traders on the other hand look for opportunities to profit from significant market movements in a short space of time by watching for stocks with the potential for trend reversals or retracements (a temporary reversal in the direction of a stock's price that goes against the prevailing trend).

Swing trading is typically a short to intermediate term trend following system lasting anywhere from a couple of days to a couple of weeks and are often created using orders that use trend reversals and retracements for their entry/exit points in the market.

Mastering both trading with the trend and swing trading trend reversals can be especially important if you are placing financial spread bets or dealing in CFDs in order to achieve higher gains through leverage. Because, if the market moves against your position, this can result in losses greater than your initial deposit.

So the aim is to not just to buy at expected bottoms and sell at expected tops, but also identify the best locations to enter a trade to ensure that you trade with the trend and not against it.

Chart patterns are typically made up of top swings and bottom swings as the market fluctuates.

Bull Trends
Chart patterns which demonstrate a formation of higher swing bottoms and tops typically demonstrate bullish trends. In many bull trends each swing bottom and top is formed higher than the last swing bottom and top as the market grows.

Bear Trends

On the opposite end of the scale, bearish chart patterns from a formation of lower swing tops and even lower swing bottoms. This makes bear trends easier to identify, because prices historically drop faster than rise.

Gaining the knowledge to determine where swing tops and bottoms are going to form is an essential part of becoming a successful swing trader.

Charting, time frames and technical indicators as part of an ongoing technical analysis could help to forecast potential market tops and bottoms. Meanwhile, entry orders and exit orders can be used to minimise losses and lock in profits.

However, it can also be important to be aware of fundamental changes that are likely to have a bearing on the strength or weakness of a particular currency, stock or share such as economic data, political factors or even natural disasters.

To learn more about trading and charting visit: http://www.cityindex.co.uk/learn-to-trade/

CFD trading and spread betting are leveraged products which can result in losses greater than your initial deposit. Ensure you fully understand the risks.

About City Index:

Today more and more individual traders are discovering the benefits of derivatives, and many of them are discovering them through a City Index trading platform.

As a group, we transact in excess of 1.5 million trades every month for individuals in over 50 countries worldwide. We provide access to a wide range of instruments including margined foreign exchange, CFDs and, in the UK, financial spread betting.

SOURCE City Index