Posted by admin On December 14, 2014 0 Comment

Identifying a market trend is very important especially to a binary options trader. Before addressing today’s topic, you must first understand what a trend is. Structurally, a trend can be seen on an asset price chart and it is often represented with a horizontal line which connects either the high price points of the asset or the low points of the asset price. Based on this, a trend can either be an uptrend or a downtrend. When market prices keep on increasing, the market is said to assume an uptrend. This rise is not however permanent and in most cases, an asset price will assume a decline after reaching a certain price level known as the resistance level. Once the price reverses and starts to move down, the asset price is said to assume a down trend.

How to Identify a Market Trend

Uptrend

To identify a price uptrend, you must first consider the asset price highs and lows at the end of the previous trading day. Secondly, you have to consider the current highs and lows of the same asset. A market is said to assume an uptrend when the current highs are higher than previous highs and currents lows are higher than the previous lows.

Downtrend

You can identify a downtrend in the same way that we have done with an uptrend, by taking into account the current and previous highs and lows. A market is said to assume a downtrend when the current highs are lower than the previous highs and current lows are lower than previous lows.

How do you know when a market starts trending?

It is very easy to identify a trending market but it is hard to know when a market changes from one trend to another and also how long a trend will last. Identifying a newly trending market is very important as it gives a trader an edge while trading by increasing the odds of having more profitable trades. To know when the market in question starts to trend, you must pay close attention to the highs and lows of the asset price. A market is said to start trending when the first low or a high is broken. By breaking the first high, the market assumes an uptrend and assumes a down trend when the first low is broken.

Advantage of Identifying Market Trends

Identifying market trends is very important as a trader is able to determine where the momentum of a particular market lies. By determining the direction of the market trend, one is able to determine if the market if bearish or bullish and they can then make a trade accordingly.

Trend trading is very simple as a trader is required to trade with the trend rather than trading against the trend. A trader must however establish trade entry points and they should preferably be during pullbacks or price reversals. The efficiency of trend trading can be increased by using the support and resistance lines as part of their binary options trading strategy.