Before You Trade The Trend—Read This First!

When following a trend, you should ask questions about a trend’s cause, strength, timeframe, supporting indicators, market sentiment, trade volume, right entry points, risk factors, and likely external influences to make informed decisions.

Let’s address these questions in details:

1. Is the trend very clear

You should ensure the market’s direction is pronounced. Look for ascending peaks and troughs in a bullish phase, or descending ones in a bearish phase.

If the market is moving horizontally, it may be wise to await a more defined path.

2. Is it a trend or range

Trends and ranges can look similar at first glance. If you want to avoid confusion, pay attention.

Carefully examine price behaviour using moving averages to confirm whether the movement will sustain or consolidate.

3. What is pushing this trend

Trends often have underlying causes. Investigate to know the reason behind it.

This would help you assess whether it is likely to continue or reverse.

4. What timeframe am I trading

Trends appear differently across timeframes. A trend on a 15-minute chart may be noise on a daily chart.

Define your trading strategy and stick to the timeframe that fits your goals.

5. How strong is this movement

It is important to note that not all trends are equally strong.

A solid one would always show a steady/persistent higher highs and higher lows for an uptrend or lower highs and lower lows for a downtrend.

To gauge its strength, examine your trendline angle and price progression consistency.

6. What technical indicators authenticate this trend

To validate a trend’s strength/ direction, monitor with Moving Averages, RSI, or MACD.

For example, an upward-sloping moving average portrays a strong uptrend.

And a RSI near 70 may signal potential overbought conditions.

7. Do fundamental factors support this price movement?

Fundamental factors can influence forex trends. A good news report may support a currency’s upward trend and a bad one may cause weakness.

8. Is trade volume supporting this trend

Strong trends typically show increasing or consistent trade volume.

When volume declines during a bullish market, it is often a sign of weakening momentum & possible reversal.

Here, the On Balance Volume indicator can show you a good picture of what is going on.

9. Where are the key support and resistance levels

These levels usually show possible turning points in the market.

So knowing them can help you plan entries, exits, and stop loss placements more effectively.

10. Are there minor reversals within this trend

Pullbacks can hint at a lasting trend and better entry points.

Use Fib retracement tools to distinguish a healthy pullback from a possible trend reversal.

11. What upcoming events could alter the market’s course

FX reacts to news events. Monitoring economic calendars helps you anticipate possible disruptions and adjust your technique accordingly.

12. What is the current trader sentiment

Sentiment reflects how traders collectively feel about the market.

Tools like the Commitment of Traders report/sentiment indicators can provide information into whether the majority anticipate the trend to continue.

13. Is this trend gaining or losing momentum

In order to establish if a trend is getting weak or becoming strong, assess the market with momentum indicators like the RSI or MACD.

A strong trend with rising power may continue, a slowing price pace can point to a possible reversal.

14. What is my plan for managing possible losses

No trade is guaranteed. Set clear stop loss orders and define your risk-to-reward ratio before entering a trade.

15. How does this trend integrate into the broader market context

Zoom out to see how the movement fits into the larger market framework.

A short term trend may move against a long term picture, and this could affect your system.

You want an alignment with the overall market cycle.

16. What is the current level of volatility

Volatility affects risk and reward. High volatility may present bigger opportunities but also larger risks.

Assess volatility with tools like the Average True Range.