Trend analysis is one of the most important tools to help you understand the market and trade more successfully. Traders that are well versed in trend analysis often can predict what an asset will do next in one glance at a price chart, and are therefore quick to find profitable trading opportunities. Trend analysis also builds the main foundation for many other indicators that can improve your trading. Learn about trend lines here!
The most important concept to understand about trends is trend lines. In many ways, trend lines are the 20 percent of the knowledge that will help you to achieve 80 percent of the rules, which makes trend lines a concept that every trader should take the time to master.
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Trends are one of the most helpful tools to analyze market movements. To make sense of trends, there are a few key parts you have to understand, mainly trend lines. Each trend’s defining criteria is the main trend line, but trends have more trend lines than one. Some of these smaller trend lines can even run in the opposite direction of the main trend line.
The main trend line defines the main direction the trend is moving in. In an uptrend, the main trend line points upwards, and in a downtrend, the main trend line points downwards. The main trend line’s inclination indicates whether a trend is moving quickly in its main direction or slowly. Discovering this main trend line is the first thing you should do when you look at a price chart.
Of course, the market will not strictly adhere to the main trend line. Instead of shadowing the main trend line exactly, the market will constantly stray from the main trend line, moving short-lived movements that first take the market away from the trend line and then back to it.
Each of these short trends has its own trend line, and you can deepen your insights into what will happen next by recognizing whether the market is currently moving away from its main trend line or back to it.
These smaller trends in turn consist of even smaller trends. You can start from a daily price chart and zoom into continually shorter time frames, and every large trend will uncover many smaller trends that in turn uncover more smaller movements. Using a 60-seconds price chart, even the smallest movements from an hourly price chart will turn into trends.
To understand this mechanism, take a look at the picture above. You can see the trend’s starting point (1), the trend’s highs (2), and the trend’s lows (3). Because we are dealing with an uptrend, the main trend line (red) connects the trend’s lows. (In a downtrend the trend line would connect the highs.)
As you can see, each movement from a point 2 to a point 3 or vice versa shows its own trend structure, as indicated by the two examples in white. Each of these trends has its own trend line. In the right half of the picture, you can see one example of the trend lines (red) diverge from the main trend, while also forming its own sub-trends (white). After a while, the market brakes the shorter trend line and returns to the main trend line.
If you can’t find a dominating main trend line on a price chart, try to zoom in and look at shorter time frame. Even if the market seems to be moving up and down randomly on a large time frame, on a shorter time frame, all of these movements will consists of trends that you can invest in.
Recognizing the main trend lines and its smaller sister lines is an important tool to finding good trading opportunities. As a binary options trader, trend lines allow you to predict which direction the market will move in and how long this movement will continue, thereby providing you with exactly the knowledge you need to win a binary option.
The important thing is to make sense of the many trend lines that you see in a chart. If you plan to invest in a binary option with an expiry of 1 hours, for example, you have to identify the trend line that is relevant for this prediction. In many cases, this will not be the main trend line, as the main trend line usually works on longer time frames, but one of the shorter trend lines.
Once you have identified the relevant trend line for your time frame, you can invest. The simplest way to invest would be to invest in a high / low options in the direction of the relevant trend and with an expiry before the movement will turn around.
If the trend has strayed from the main trend line and now moves back to the main trend line, you can estimated how long it will take the market at its current speed to reach the main trend line. This is your maximum expiry time. Likely, the movement back to the main trend line has its own sub trends. Your minimum expiry time is should be long enough to let these shorter trends destroy an otherwise correct prediction.
If you identify a movement with an maximum expiry time of 2 hours and a minimum expiry time of 30 minutes, using a 60 minutes expiry time would be perfect. Invest in a high / low option, and you are likely to win your trade.