Define your trading plan! Find out how to identify trends by implementing simple strategies

One of the basic trend trading strategies is called “Ride the trend”. Watch our latest video, and learn, step by step, how to identify trends on charts.

How to identify trends – a step by step guide

Hello, everyone! Today we are going to review one of the most basic strategies that is out there called, “Ride the Trend strategy” and as the name itself says, we are going to look and try to identify certain trends on charts and based on trends, define our trading plan.

So the first step and the most important step, by a mile, in this strategy, is to identify a trend. Here, you can see that we’re looking at the Euro/Dollar chart, at the four-hour chart. So here, you can see that we have a bullish trend. We are advancing higher until eventually, we stop here and we create this almost double top at above 1.25. Then, the second part of this, let’s say chart, you have a consolidation in the form of a symmetrical triangle, where you have lower highs and you have higher lows, which means that the consolidation of the price is taking place, and the price is either going to push higher or it is going to break down. And, obviously, the third part of this chart, as you can see it’s what happened actually, is we aggressively broke down in this triangle and pushed lower. So, here, what is interesting for us, is we have consolidation and since we are in a position to identify the trend, we are looking to then identify the trend up or down based on the trend. Since we pushed lower, we are looking to enter into our short side since we’re looking to ride the trend, since obviously, we broke down the triangle.

So, let’s breakdown this trade. Let’s break down this trade on a lower time frame. So, here, we are now at the one-hour chart and what you can see here is, we pushed and closed below the triangle. We had a consolidation below the triangle, so it’s comfortably trading below the triangle. We have a retest, which is a perfect scenario, and this is when we are entering our trade, here at 1.22, more or less, 1.2245. If you entered here, the greatest thing about the retest is that you limit your Stop-Loss. So, here, you can only put like 15 or 20 pips Stop-Loss, which means that if price would have returned to the triangle, then you’re out because what you’re trying to do is, you are trying to get a continuation to the downside. So, here we enter our trade, and then, based on the strategy Ride the Trend, we actually do what the strategy says, we are riding the trend to the downside. Here, you can see we have this horizontal downward slope. You can see it here. So, it’s actually a horizontal resistance, diagonal resistance. Actually, I’m sorry, diagonal resistance, horizontal but diagonal resistance that is keeping the price below it. So, in this particular method, because, unlike some other strategies, riding the trend is actually only a plan, so it might contain different methods in order to implement it. So, in this particular method, we are trading this triangle, so we broke down the triangle, and the second part is actually we are also trading this diagonal resistance line. So, here we’re entering the trade at 1.2245 and as long as the price does not break above this horizontal line, we are into the trade. We are looking, the moment it pushes above this diagonal line, we’re out of the trade. So we trail out stops. So, you can see here, we have a push to the downside, then we recover, we have a push to the downside, we recover, we have a push to the downside, we recover, but we are still in the trend, right? Because we create lower highs and lower lows, lower highs, lower lows, all the way up to here because here we have a break of the diagonal line, and actually, if we trailed our stops, from example starting from here, we trail, trail, trail, push our stop lower, here we close the trade, and you are in 300 Pips, actually more than 300, 350 pips, take-profit based on risking 20 pips. Obviously, this is a great example, this happens once in a very, very long time, but it happens. You could have also traded against the 100 moving average. You can see here, the blue line, which, in this moment, coincides with this diagonal line, so you could have said, as long as the price is below, I’m going to stay in my trade, and once it breaks the line, I’m going to exit my trade. So, in this case, you will have also 350 pips take-profit. So we’re riding the trend as long as the trend goes here, we break the trend, why? Because we create higher lows and higher highs.

Again, another chart, which is a bit different, because now the bullish, but we’re using the same method. So, here we have a channel, we have an upward channel in the Dollar/Yen, which means that the price is creating higher lows and higher highs. So, as soon as you identify that you are in a channel, for example here, we enter into the trade. Here, you see, we enter the trade, let’s say 1.0690 we are long, and then we go, as long as the price stays in the channel, breaks above the channel, we are into the trade. If it breaks here, we’re out. So, if the price immediately breaks, then we’ll probably lose let’s say, 20-25 pips. That’s what we risk. But, as long as the price goes up and creating lower lows and higher highs, higher lows, and higher highs, then you’re actually just moving your trailing Stop below the channel here, here, here, here, here, here, of course, you’re not getting out, because this is only 5 pips violation, and if you’re smart, you’ll always keep 15-20 pips below the support line. Most probably you’ll be out here if you really want to be meticulous. If you want to be more aggressive, then you will also allow this to happen because here we are talking about 15-16 pips, not more. So, if you put maybe a Stop-Loss here, then you will also put right another leg higher, so you will still be in a trade, and as we said you enter the trade in one of seven areas with 400 pips move, because what you do, you say as long as the price does not break this channel comfortably close, trade below, or push downside, I’m going to be into this trade, or the same as in the Euro/Dollar chart, as long as the price is below or above both 200 and 100 moving averages, I’m out. So, maybe here, yes, you could have been out because the price is below 100, below 200 and below the channel for some 10 pips, but still, in that case, we are looking at 230 pips take-profit. So, one of the most basic strategies to implement, not so hard, the most important thing is to ride the trend.