Trend Trading Little Known Secrets

As the saying goes, "Tell me where the market has been and I will tell you where it is going to go." The first step you need to take is to draw all the uptrendlines and downtrendlines including the inner, outer and the longer term lines. This is done so that you know if the market is in an uptrend or a downtrend or whether the trendline has been broken signaling the potential end of the trend.

You also use the ADX indicator combined with the DMI indicator to determine whether the market is in a strong uptrend. Now find the latest upward rally AB in the market. Most trading software now has the Fibonacci Retracement and Extension Tool. If you are a currency trader and use MT 4 then you can easily find this essential tool in the menu.

As you use the Fibonacci Retracement Tool, start by connecting the latest rally AB in the uptrend. The settings in your trading software will automatically draw the Fibonacci Retracement and Extension levels. Find a C point such as morning star candlestick pattern or the bullish engulfing pattern or a hammer. Plan to place a stop loss. It should be commensurate with what you can afford to lose. These candlestick patterns tell you that the price action is about to reverse soon.

Now, you have entered the trend. Good! Find the projected Fibonacci Extension Level as well as four levels of past resistance.This will help you predict the length of the swing. Determine you take profit target. Calculate the reward to risk ratio. It should not be less than 2 to 1. If less than 2, don't enter the trade. Using a trailing stop in an uptrend is not a bad idea. The only problem is that if the price action retraces momentarily and then again joins the uptrend, it will trip cutting short your profit target. Whatever, you are all set to trade the trend now. In case of a downtrend, jut do the opposite of what you do in an uptrend! Good Luck!

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