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Trade With The Trend In Price Action Trading
If you can recognize the primary trend in price action trading, half of your trading battle is won!
As you scan through your price action charts in your watch list, it should take you less than 5 seconds to tell whether there is a trend. If it takes more than that and you have to take a second look, chances are that there is no trend and there is no trade to consider in the stock yet.
There are basically three types of trends:
3. Sideway trend
If prices are rising and making higher highs (HH) and higher lows (HL), then we have a rising uptrend.
If prices are going lower and making lower high (LH) and lower lows (LL), then we have a downtrend.
In the charts below, how many seconds does it take for you to see whether it is an uptrend, downtrend or sideway trend?
If prices is moving sideway without making higher high or lower low where prices basically trade in a range like a rectangle, then the trend is sideway.
Market price in an uptrend does not move up and up in a straight line. The price swings instead like a wave going up. As a swing trader in price actions, it is important to know this structure of higher highs and higher lows to avoid the following mistakes:
1. Making trades at the wrong levels
2. Getting stop out early in a trend
In an uptrend, you should be looking to buy on a down swing (pullback) when it is making a higher low.
In a down trend, you should be looking to sell on a up swing (pullback) when it is making a lower high.
We discussed in this article of Support and Resistance the concept of resistance turned support in an uptrend and support turned resistance in a downtrend. Traders can wait for a pullback to the new support or resistance for a price action trading signal to enter a trade in the direction of the bigger trend on the daily chart.
In a sideway market where prices are choppy and there is no trend, it is best not to trade as the risk reward may not be favorable. However, if you find a chart with distinct support and resistance as shown below, you can consider to sell at the top of the range or buy at the bottom of the range.
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