Traders using trend lines follow three types of time measurement to trade to. That is Long Term, Medium Term, and Short Term.
This is the third article on trend following forex trading series. This time we are going to talk about time measurements commonly used by trend following traders in the market. Traders using trend lines follow three types of time measurement to trade to:
1. Long Term
Long Term is what it's name suggests, it is over a long period that traders follow the trend, months and years. The trends can be easily identified using daily, weekly or monthly charts. Generally these traders will use fundamental factors in analyses.
2. Medium Term
Medium Term trends are traded over a few months, with often a maximum of eight months. Position traders will usually hold the position of this trend for a few weeks or a month.
3. Short Term
Short Term trends simply last for a few days, maximum a month. These trends are in connection to daily economic changes and global situations that will affect the market. Day traders will often trade using this type of trend time measurement to gain profit quickly.
Trading using any of these types of trend time measurement requires you to be vigilant in watching the market and to indentify a strong signal that these trends are occurring.
This last point about identifying a strong trend is the most important. Ways to identify a strong trend are by knowing the trend line gradient and the consolidation and correction of the trend as it occurs. The steeper the gradient, the more likely it is to break the trend line; it means there is a possibility of the trend to end. So the rule here is to not trade the trend when the gradient of the trend line is too steep.
Knowing the consolidation and correction is another way to ensure the strength of a trend. Trends will not always keep steady movements with the price retracting occasionally. How quickly a trend recovers from retracting will determine its strength, if it is only a short period of time it is a good indication it is strong.
For more info on how to get a strong signal see my previous article on 3 EMA crossover. The next article will discuss how to enter the trade using trend lines.
See you soon!
Rico FY