Trend Trading for Beginners
There is a paradox at play when it comes to learning to trade in that beginning traders need to be much more patient than experienced traders. This is because beginners need to focus on taking just trend trades, and avoid counter-trend trading; while experienced traders can take both.
Unfortunetly most beginning traders don’t understand why they need to focus on trend trades. Or worse they are told that trend trading is riskier than counter-trend trading. It is not. You need to understand that before you can counter-trend trade you need to be an accomplished trend trader. If you are ever to get to the point where your intuition becomes a tool in your trading plan it will only come from extensive trend trading experience. You need to learn to trend trade first!
A trend trade is defined as a trade signal in line with the next higher time frame trend. The next higher time frame is the time frame 4 to 5 times higher than the time frame you wish to trade. If you trade a daily chart the next higher time frame would be the weekly chart. If you trade a 15 minute chart the next higher time frame would be a 60-minute chart. The key is to take a signal on that lower time frame in line with the trend on the next higher time frame, and the more obvious the better!
Here’s is an excellent example of a trend trade from today that is both obvious and succesful.
We can see from the 60-minute chart in the lower panel that there is the third point of an existing 2-point trend line interesecting nicely with the Daily central pivot — clearly the market is in an uptrend on this time frame. We then look to the lower time frame and see a hammer on that same confluence of support, followed by a close above the high of the hammer on the next candle. By closing above the high of the hammer the market breaks the previous pattern of lower highs and lower lows to change the direction on that time frame and give a buy signal. The direction shifted in line with that next higher time frame making that buy signal a trend trade.
The hardest part about this trade would have being on your screen and focused on this market as it was taking place. The hardest part about catching the next one is being patient enough to wait for the proper circumstances to set-up the next trend trade.
Always remember no matter your previous experience, or what track you’ve been on, you were designed to succeed. It’s going to take patience though…
Jay Norris
www.trading-u.com
DISCLAIMER: Forex (off-exchange foreign currency futures and options or FX) trading involves substantial risk of loss and is not suitable for every investor. Risks include the potential that changing political/economic conditions may substantially affect the price/liquidity of a currency. Investors may lose all or more than their original investments.
This is a great example of a trading set-up. I learnt a lot from the “Hammer” and the very next bar, which closed above it. Thanks for the lesson.
It is comforting to know that “I am designed to succeed”….I am working on the Patience part all the time; It’s at the forefront of my mind.
It was good for me as Newbie, i will learn more from you & it will be good for us if learn the current market
The point about counter trend trading is so right. I’m learning how to efficiently identify the continuation of a trend after a period of consolidation. Until I can there is no way I can expect to counter trend trade successfully. As a fledgling trader it’s hard to resist though and makes for a good lesson in patience too.
Hi Andy,
Good job! Your ahead of the crowd for sure! Lagging indicators help w/ that too. Patience is Job 1!
jay