Trend Trading

Trend trading is a method of buying or selling financial assets based on the direction of market momentum. When prices are moving up over time, traders look to buy. When prices are moving down, they look to sell or short. The goal is simple: ride the movement for a while, but get out well before it turns. You’re not trying to catch the exact top or bottom, you’re aiming to catch the middle—the meat of the move. This means you will open positions when a trend has already been established. You will not try out “outsmart” the market by opening positions even before a clear trend is present.

This style of trading is built on one assumption: that markets tend to move in observable, sustained directions over time. These moves can for instance be driven by sentiment, macroeconomic shifts, news cycles, or technical breakouts. Trend trading doesn’t care what the reason is. If the market is moving in one direction and holding it, trend traders look to follow it instead of being contrarian.

Understanding Market Trends

Markets aren’t random noise all the time. While short-term fluctuations can be chaotic, broader movements often unfold in stages. A trend is simply a series of higher highs and higher lows (uptrend), or lower highs and lower lows (downtrend). These patterns suggest a directional bias: more demand than supply, or more supply than demand.

Trend traders don’t guess where the market is going. Instead, they react to what’s already happening. They wait for confirmation that a trend is forming, then enter when there’s evidence it may continue. If the trend holds, they stay in, until they start noticing signs of a reversal, or have reached certain pre-defined targets. The idea is not to predict the market but to respond to it. You’re not smarter than the trend. You’re just riding it.

You don’t need to be an expert in macroeconomics or use complicated algorithms to trend trade. You just need to observe and learn how to correctly interpret what you are seeing. Is price rising steadily with clean pullbacks and strong closes? Are higher lows forming over time? Are breakouts holding? That’s a trend. Are you guessing the bottom or top? Are your trades reversing every other hour? That’s not trend trading; it’s just noise chasing.

Many professional traders keep it simple: they trade in the direction of the trend, while employing discipline and risk control routines.

Tools Used by Trend Traders

Many trend traders use a combination of price action and indicators. Some focus purely on charts. Others rely on automated signals.

• Moving averages are common. A 50-day or 200-day moving average helps define the overall trend. When price is above the average and the average is sloping upward, the market is generally in an uptrend. When price is below and the slope is down, that’s a downtrend.
• Trend lines are drawn by connecting key highs or lows, and can help you spot structure. If the market keeps bouncing off a rising line, the trend is intact. If that line breaks, it might be ending.
• Indicators like MACD (Moving Average Convergence Divergence), ADX (Average Directional Index), or even volume-based signals can help filter noise. But no indicator confirms anything perfectly. They’re just signals.

For an in‑depth exploration of how technical indicators like moving averages, trendlines, and oscillators are employed to identify and ride trends, consider the trend‑trading strategy guide on daytrading.com.

What is a moving average?

A moving average (MA) is a technical analysis calculation that helps smooth out price data by averaging prices over a specific period. This reduces noise and can help you spot underlying trends more clearly. Trend traders use MA to identify both uptrends (signaled by a rising MA) and downtrends (signaled by a decreasing MA).

Several different MA:s exist, such as Simple Moving Average (SMA), Exponential Moving Average (EMA), and Volume Weighted Moving Average (VWMA).

A moving average can be calculated for any term, provided you have price data. In practice, many traders use the 50-day SMA as their basic short-term indicator and the 200-day SMA as their basic longer-term indicator.

The moving average should ideally not be used in isolation, since you get a clearer picture if you use it in conjunction with other indicators. Sometimes, even a bit of fundamental analysis is required, e.g. knowing that a planned news release may impact the trend. It is also important to remember that moving averages, due to their very nature, will lag behind price movement. The longer the period, the stronger the lag.

What is a trend line?

In technical analysis, a trendline is a straight line drawn on a price chart connecting a series of price points (usually swing highs or lows) to show the direction of a trend, and potential support or resistance levels. Swing traders often use trendlines to help identify suitable price points for entry and exit. The angle of the trend can also help determine the strength of a trend.

What is MACD?

MACD stands for Moving Average Convergence Divergence. Trend traders can use it to identify trends and momentum, since it is essentially a momentum oscillator that shows the relationship between two moving averages of a security’s price. It represents the momentum of price changes, and can help you identify if a trend is strengthening or weakening.

What is ADX?

ADX stands for Average Directional Index. It is a technical indicator that helps traders determine the strength of a trend, with a higher ADX indicating a stronger trend. Typically, trend traders want the ADX value to exceed 40 before they classify a trend as strong.

Entry and Exit

Entry depends on confirmation. Trend traders often wait for a breakout (a price move beyond a recent high or low) or for a pullback and continuation. Some use candlestick patterns or momentum surges to enter. The key is not to jump in too early. Getting in during a choppy phase, before the trend is confirmed, can mean getting whipsawed by sideways movement. Do not lose your head to greed. Greediness makes trend traders keen on getting in as early as possible, and this behavior will cause you to jump the gun prematurely.

Exits are just as important. Some trend traders use trailing stops, moving their stop-loss level up as the trend moves in their favor. Others close the trade once a specific target is hit or a reversal signal shows up. There’s no perfect entry or exit. The goal isn’t to capture the entire trend; it’s to get a big enough chunk to make the trade worth the risk.

Timeframes

Trend trading works across all timeframes: minutes, hours, days, even weeks and months. Short-term trend traders may look for micro-trends within a single trading session. Medium-term trend traders may look for trends that are likely to hold for several days or weeks. Longer-term trend traders look to ride broader economic or industry-based trends that can last months.

Shorter timeframes offer more opportunities, but also more noise. Longer timeframes offer cleaner trends, but slower setups and longer hold periods which tie up capital. Each choice has its pros and cons, and success depends more on being good at the timeframe you picked, than picking the right timeframe.

Risk and Discipline

Trend trading doesn’t work all the time. It is not a magical risk-free money making machine. Markets often move sideways. Trends break suddenly. Volatility increases. News changes everything. This is why risk management is critical. A good trend trader controls position size, sets stop-loss levels before entering, and doesn’t emotionally hold onto trades hoping the trend comes back. Sometimes you will be wrong, and you need to learn how to close a position instead of keeping it open just because you wish the market to prove you right eventually. Control your ego. The biggest risk in trend trading isn’t the market. It’s the trader. Getting greedy in a fast move, refusing to exit when the trend weakens, or over-leveraging during a choppy phase are all examples of behaviors known to break traders and wipe out trading accounts.

Trend trading success depends more on managing risk and your own behavior than on picking the perfect entry. For educational content on strategy, trading psychology, and market timing principles, investing.co.uk offers a library of accessible guides aimed at UK-based and global retail investors.

How Trend Trading Differs from Swing Trading

Trend trading and swing trading are both active strategies used to profit from market movements, and they can both be profitable or drain your account, depending on how they’re applied.

Generally speaking, traders who identify as trend traders will operate with somewhat longer timeframes than the typical swing traders, although the lines can get blurry and there is definitely some overlap.

Trend trading is about identifying and following the dominant direction of a market (up or down) and get out before the trend stops. You enter once there’s evidence of a sustained trend and ride it until there are signs of reversal or exhaustion. The average time period will be weeks or months, but sometimes even longer. The goal is to capture large, sustained moves. Patience is more important than precision.

As a trend trader, you will attempt to spot strong trends by looking for a clean pattern of higher highs or lower lows. Let time do the work, and don´t react to minor price dips, intraday noise, and temporary pullbacks.

Swing trading is more focused on catching shorter-term moves (”swings”) within a trend or range. Swing traders typically hold positions for a few days to a couple of weeks. Compared to trend traders, they are doing more of the ”in, out, repeat”. When they use technical analysis, their chart focus can be anywhere from 4-hour to daily and even weekly charts. Swing traders want cleaner entries and sharper exits. The goal is to extract the most reliable portion of a move, skip the noise, and get out in time. Swing trading requires more screen time than trend trading.

• Examples of technical analysis tools and indicators frequently used by trend traders: moving averages, trendlines, price structure, volume
• Examples of technical analysis tools and indicators frequently used by swing traders: moving averages, support/resistance, Relative Strength Index (RSI), Moving Average Convergence Divergence (MACD)

Trend Trading vs. Intraday Trading

Day trading (intraday trading) involves opening and closing all positions within the same trading day. There are never any overnight holds. It’s about capturing small, fast price moves, which can be based on volatility, momentum, reactions to news, etcetera. When we hear the term trend trading, we typically think about traders chasing trends that last for weeks or even months. Still, within the day trading discipline, some trading strategies are actually based on identifying intraday trends and riding them during the day, and traders employing such strategies can therefore, in their own way, be considered trend traders, even though they work with very short timeframes compared to classic trend traders.

Intraday traders tend to rely heavily on technical analysis, with a chief focus on charts ranging from 1-minute to 15 minutes. They look at variables such as price action, order flow, volume, and volume-Weighted Average Price (VWAP). Since day trading is so intense, you need sharp discipline, fast reflexes, and the ability to manage risk in real time. Intraday trading requires a high focus during the trading day, and it can be emotionally draining. Some traders do however appreciate that they never have to worry about open positions outside each trading session. When they leave the screen and log out for the day, all positions are closed.

What Markets Can I Trend Trade?

Trend trading isn’t tied to any one market. If prices move, trends form. That’s really the only requirement. Whether you’re trading currencies, stocks, cryptocurrency, commodities, or something else, the mechanics are the same: identify a direction, enter on confirmation, manage the risk, and exit before the trend fails.

Some markets trend more cleanly than others. Some move faster, some slower. What matters most is liquidity, volatility, and consistent movement over time. Below, we will look at some examples of asset types known to attract plenty of trend traders.

Forex (Foreign Exchange)

Forex (foreign exchange) is one of the most popular markets for trend traders. It’s highly liquid, open 24 hours a day during the trading week (Monday – Friday), and tends to respond strongly to macroeconomic themes, including interest rates, inflation expectations, and central bank decisions.

Major currency pairs like EUR/USD, GBP/USD, and USD/JPY often form strong directional moves over days or weeks. Some exotic pairs, especially those involving emerging market currencies, are more volatile and unpredictable. But majors and crosses give plenty of clean trend setups, so you don´t have to take your chances with the exotic pairs.

Forex trend traders tend to use hourly, 4-hour, or daily charts depending on their strategy. Forex trends can last for weeks if driven by economic divergence between countries.

Stocks

Stocks can be highly suitable for trend trading, especially at the individual company level. If a stock has momentum, news backing it, and broad investor interest, it can trend hard and long. Earnings beats, new product releases, or sector rotation often fuel strong moves.

Trend trading works both short-term (day trading breakouts or runs), mid-term and long-term (holding winners over weeks or months). Stocks that gap higher and keep climbing often draw in momentum traders looking to ride the wave.

The key is volume and price continuation. Stocks that break out but fail to hold new highs often trap traders expecting trends. Stocks that trend tend to consolidate and continue, with higher highs and higher lows.

Stock Indices

Indices like the S&P 500, NASDAQ Composite, Dow Jones Industrial Average (DJIA), DAX, and FTSE 100 often develop slow, steady trends over weeks or months. These are great for mid-term and long-term traders who want to avoid single-stock risk but still benefit from stock market movement.

Trends in indices are usually cleaner than in individual stocks, but they move slower and require more patience. They tend to be affected by macro conditions, such as economic data, policy announcements, and global sentiment, especially if you speculate on broad stock indices. With such indices, you can profit from trends that hold if the backdrop stays consistent.

The more niche an index is, the more it can be impacted by some specific factor that might not have an impact on the broader stock markets. This poses both a risk and a profit potential for trend traders.

Commodities

Commodities (e.g. gold, silver, oil, natural gas, wheat, and cocoa) are driven by supply-demand cycles. Examples of factors that can have an impact are geopolitical changes, seasonality, harvest predictions, actual harvest numbers, and inflation. They often trend well during periods of macro tension or economic shifts. Commodities don’t always trend, but when they do, the moves can be aggressive and last for months. For example, oil can trend sharply during production cuts or war-related supply issues. Gold may trend during inflation fears or currency devaluation periods.

Commodity trend traders often use daily or weekly charts, along with volume or sentiment indicators to catch the early phases of a longer move. It is important to realize that each commodity has its own profile, and you can not expect all commodities to move along the same lines or follow the same trends.

Commodities are commonly divided into soft commodities and hard commodities. Agricultural products fall into the first category, and coffee, wheat, cocoa beans, cotton, and pork bellies are all examples of soft commodities. Hard commodities are extracted, e.g. WTI crude oil, Brent crude oil, natural gas, gold, silver, and zinc.

Cryptocurrencies

Cryptocurrencies like Bitcoin, Dogecoin, and Ether, known to be volatile and very high-risk, but they also have tendency to trend extremely well when they trend, and this had caught the attention of trend traders around the globe. Since the 2010s, we have seen amazing crypto bull runs and absolutely brutal bear markets. Both create clear directional moves with strong momentum.

Cryptocurrency trends are often driven by sentiment, narratives, and liquidity cycles. This is not stocks, nor national currencies. There are no earnings, no balance sheets, no fundamentals. No national bank is tinkering with the interest rates.

The market runs 24/7, so trend continuation or reversals can happen any time, including nights, weekends, and holiday. This constant movement offers opportunity but also requires discipline. Trend traders in crypto usually use wider stops and focus on daily or 4-hour charts to avoid noise.

You do not have to actually buy, hold, and sell cryptocurrencies to speculate on them. If you prefer, derivatives are available, which allow you to gain exposure to cryptocurrency trends without actually owning any cryptocurrency.

Futures

Futures contracts are a type of standardized and exchange-traded derivatives, and they can be based on a wide range of underlying assets, including commodities, indices, currencies, interest rates – even the weather. Futures tend to trend well because they often reflect institutional positioning. If large players are accumulating or dumping a position over time, it shows up as a trend.

Examples of popular futures markets for trend trading:

• S&P 500 E-mini (ES)
• Crude Oil (CL)
• Gold (GC)
• Euro FX (6E)
• Soybeans
• Corn
• Wheat

Futures require margin and carry higher leverage, so they’re not suitable for inexperienced traders. But the trend setups are often clean, and technical patterns often work well on longer timeframes.

ETFs

Exchange-Traded Funds (ETFs) offer exposure to stocks, sectors, commodities, or even currencies without trading the underlying instrument. For trend traders who don’t want leverage or direct exposure to volatile assets, ETFs are an easier way to follow trends in broader markets.

Examples of well-known ETFs:

• SPY (S&P 500)
• XLK (Technology sector)
• GLD (Gold)
• USO (Oil)
• TLT (Long-term bonds)

ETFs can trend for months and allow traders to participate in market cycles without needing futures accounts. ETFs can be used for day trading, but works just as well for longer-term trading. You can even use them as buy-and-hold investments.

An ETF is similar to a traditional mutual fund, but the fund shares are listed on an exchange and traded in a manner similar to stock trading. With a traditional mutual fund, shares are normally only bought and sold once a day, at the end of the trading day. With an ETF, you can buy and sell fund shares throughout the trading day, which means they work well even for intraday trend traders.

The exchange-traded fund invests in a basket of assets, which means you can get a much higher degree of diversification, which in turn can make the trends more reliable as they are not at the mercy of a single asset. Example: Instead of trading a single stock, you are speculating on an industry, a sector, a geographical market, or similar.

Brokers for Trend Trading

Which broker that is best for you and your particular trend trading strategy depends on a multitude of factors, and it is not possible to crown one specific brokers as the best one for all trend traders and all trend trading strategies.

Below, we will look at a few examples of factors that are good to keep in mind when you compare different brokers. We will also mention a few brokers that are popular among trend traders online, but the list is by no means exclusive, and a completely different broker that we have not mentioned here might be the best one for your specific situation.

Examples of major factors that need to be considered is where you live, which underlying asset or assets your strategy is built on, your need for leverage, the on-platform risk-management controls required for your risk management strategy (e.g. trailing stop-loss orders), and how you want to start out when it comes to deposit size and trade size. Before jumping into any platform, it’s important to know what kind of broker you’re dealing with and what they actually offer.

Regulation

Some brokers operate under strict financial regulation, while others are based in countries with a more lax approach to trader protection (including retail trader protection). There are also financial authorities that have strict trader protection rules on the books, but not the legal powers and/or sufficient resources to actually supervise brokers, investigate complaints, and enforce the rules in meaningful ways.

All this matters because you are putting a lot of trust in your broker, and not all brokers are worthy of that trust. When a broker is not regulated by a strict financial authority that actually supervises brokers and enforces trader protection rules, you are more likely to fall prey to sketchy practices and outright fraud.

Examples of well-known and reputable financial authorities are the FCA (UK), ASIC (Australia), CySEC (Cyprus), and CFTC (U.S.). They force brokers to follow strict rules regarding things such as pricing, risk disclosure, client fund segregation, reporting and auditing, and general transparency.

When a broker is operating from a lax jurisdiction, you may not have much recourse if you run into issues such as stalled withdrawals, price manipulation, opaque bonus terms, or a frozen account. Some sketchy brokers look really professional, and you will not notice the dirty underbelly until you try to withdraw a large profit or dispute a trade.

The best course of action is normally to pick a broker that is authorized by your local financial authority. (For traders in the European Union (EU), that means a broker anchorites by any of the membership countries.) If something happens, it is typically easier to deal with your own domestic financial authority, especially if other parts of the justice system need to get involved (e.g. in the case of fraud). You may also be covered by investor protector insurance, which can pay out if you lose money because your broker becomes insolvent and fails to honor its obligations to the traders.

In some parts of the world, the financial authorities do not provide stringent trader protection, and traders may therefore prefer to use brokers regulated by foreign financial authorities. This can be the ”least bad” choice, but it does introduce jurisdictional complexity. You might also fall between jurisdictions when it comes to investor insurance, and end up being covered by none.

Things to Watch Out For

A broker can be sketchy even if everything looks professional on the surface. Here are some examples of warning signs to pay attention to:

• Not licensed by a reputable financial authority
• Fake or misleading information about regulatory status
• Bonus offers with opaque terms
• “Guaranteed” profits
• Fake or unrealistic reviews and testimonials
• Complicated or delayed withdrawals
• Low-quality customer support
• A bad reputation among other traders online

Ideally test the broker with a small deposit before committing more capital. Try a withdrawal early. If it’s difficult, that’s a sign. With that said, some fraudulent brokers know how to play the long game.

Forex Brokers

Examples of well-known forex brokers:

• IG – UK-based, FCA regulated, offers forex, indices, and more
• OANDA – Strong reputation, regulated in multiple regions. OANDA is headquartered in New York, NY, with offices in several other locations including London and Toronto.
• Pepperstone – Australia-based, ASIC and FCA regulated, fast execution
• CMC Markets – Solid platform for both beginners and experienced traders. While headquartered in London, they also have hubs in Sydney and Singapore, with additional offices in several other countries. 
• Interactive Brokers – Heavier platform, more professional features. Interactive Brokers is headquartered in Greenwich, Connecticut, in the United States. It has offices in various other locations globally.

Broad forex brokers will usually offer access to the spot forex market, plus forex-based derivatives such as forex CFDs, fx options, and fx indices. Some also offer forex ETFs.

Stock Brokers

Your timeframe matters a lot when you pick a broker. A broker that is ideal for daytrading stocks might come with hefty overnight fees which makes it unsuitable for swing traders and position traders. A broker that is great for long-term investments in the stock market might be unsuitable for trading, and so on.

Examples of well-known stock brokers:

• Charles Schwab, TD Ameritrade, and Fidelity are popular in the United Sates.
• eToro is chiefly known for social trading, but also offers manual trading.
• Interactive Brokers offers global reach and advanced tools.
• Robinhood has become especially popular among beginners.
• Degiro is an EU-based stock trading platform with low fees

Crypto Brokers and Crypto Exchanges

Most cryptocurrency trading platforms are technically market places, and not brokers in the traditional sense, but the line can be blurry, and the world of cryptocurrency is a rapidly evolving and tech-driven space known to frequently be five steps ahead of the various governmental bodies aiming to control it. Some crypto market places call themselves exchanges, which can be confusing for consumers who associate the word with tightly regulated stock exchanges such as NYSE and Euronext, where clearinghouses are in place to reduce counterparty risk.

Examples of well-known, high-volume cryptocurrency market places:

• Coinbase
  Simple interface, very limited trading tools
• Binance
  Wide asset selection, high volume
• Kraken
  Focus on U.S. and EU users, more regulatory compliance
• Bitstamp
  One of the oldest exchanges, more conservative structure

Binary Options Brokers

Binary options are banned or restricted in many countries, and in some places brokers are no longer permitted to sell binary options to non-professional traders (retail traders).

Binary options can be used for trend trading, but you should take a few things into consideration before you jump on the binary options train:

• It can be very difficult to find a retail binary options broker that is supervised by a strict financial authority with strong trader protection, since most of these authorities have banned brokers from selling binary options to retail traders.
• There is a built-in house edge that will work against you. Example: If the payout range for a binary option is 80%, it means you make an 80% profit when you win, but lose 100% of your stake when you lose. With that kind of set-up, you need to win considerably more than half of your trades just to break even.
• With traditional binary options, the outcome is binary. You get paid the full payment or you lose the entire stake. You can not use normal risk-management tools, such as stop-loss and take-profit orders. You can´t not close a position early to realize a profit or cut your losses. Not being able to risk-manage an open position is very negative for trend traders.

CFD Brokers

Contracts for Difference (CFDs) is a type of derivatives that are available for a wide range of underlying assets, which means you can engage in trend trading of stocks, indices, forex, commodities, and more, without actually buying and selling the underlying assets.

Brokers in the United States are not allowed to sell CFDs to retail traders, but the practice is legal in many other parts of the world, including the Europe Union, Australia, and much of Asia. CFDs are leveraged products, and some financial authorities have capped how much leverage a broker is permitted to give a retail trader.

Two examples of brokers with a large offering of CFDs are IG and CMC Markets.

Futures Brokers

A futures contract is a type of derivative that can be used to speculate on the movements of a wide range of underlying assets and products – even the weather. With most brokers that offer futures, you will need a specialized futures account to carry out futures trading, and opening one can require you to jump through certain hoops, as these products are not intended for inexperienced traders.

Examples of well-known brokers where you can carry out futures trading:

TradeStation
Advanced platform for options and futures

Saxo Bank
Offers forex, stocks, futures, options, and more

NinjaTrader
Plenty of futures, mostly U.S. products