Trading The Trend – Part 3





October 8, 2015 at 4:25 pm

Finally, we have arrived at the final part of the 3 part series. The first article, Trading The Trend – Part 1, I went through the different types of trends and ways how you can identify them. In the previous article, Trading The Trend – Part 2, I explained how you can spot the end of a trend and possible reversal points in the market. Now in this article, Trading The Trend – Part 3, we will look at a few trading examples of how you can trade with the trend.

How To Trade With The Trend

There are a lot of different styles and trading strategies that can be used to trade with the trend. You need to be able to adapt to changing market conditions if you want to be successful. I firmly believe in the KISS rule, which stands for “Keep It Simple Stupid.” The easiest way I have found to trade a trend is by trading support turning into a resistance level or a resistance becoming a support level. These levels combined with candlestick patterns and flags are the only tools you need to effectively trade any trend. I am only showing you a few strategies but remember there are many ways to skin a cat. So that being said, let’s get on to some trading examples.

First off we need to determine the trend. In Figure 1 below, we can see that we have a clear downtrend taking place on the GBP/USD 1-hour chart. Price is making lower highs and lower lows while respecting the trend line beautifully. After a while, we saw that price broke through the trend line and started making higher highs and higher lows. If we look back at Part 2 of this series, we should be able to identify that the trend has changed from a downtrend to an uptrend for the time being.


Figure 1 – GBP/USD 1hour Trend Direction

Note: The following trading examples will all be based on the above chart.

Trading Example 1

Ok, so let’s start with the easiest trades first. During this trend, you could have taken 3 very obvious put trades on the trend line which is represented by the red arrows on the chart. After the 3rd arrow, we saw that price disrespected the trend line and broke right through it. This does not mean that you should delete the trend line just yet. Trend lines that break will more often than not, act like a support or resistance level when the price comes back to it. It works on the same principle as a support that turns into a resistance level when the level gets broken. This is exactly what we saw happened at the green arrow. Price came back to test the trend line but failed to break it. This was a high probability call trade to take because we already knew that the market changed direction to an uptrend.


Figure 2 – Trades Taken Off The GBP/USD 1hour Trend Line

Trading Example 2

After the price had broken through the 1-hour trend line, you could have gone down to a smaller time frame to identify where the price decided to break the line. In this example, we are using the GBP/USD 15-minute timeframe. On 2 October 2015, we saw a resistance level formed just before price decided to burst through the trend line. You should know by now that a broken resistance level becomes support. After making a huge move up, price slowly came creeping back to the level and finally touched it on 5 October. We got the perfect signal at our first green arrow. You could have taken a touch trade on the level or waited for the bullish engulfing candlestick pattern before making the call trade. The second trade was a quick touch trade on this support level.


Figure 3 – GBP/USD 15minute Support Call Trades

If you wanted some type of confirmation before taking the second trade, you could have gone down a few timeframes to look for a buying signal. For this, we will look at a 1-minute chart. In figure 4 below, we can see the same support level as in figure 3. When price touched this level, it formed another lovely bullish engulfing pattern. In my books, this is all the confirmation I would have needed to pull the trigger.


Figure 4 – GBP/USD 1minute Confirmation Call Trade

Trading Example 3

This trading example is based on a flag chart pattern. Like I said in the Chart Patterns article, flags are extremely useful if you are looking to take trades with the momentum of the trend. In figure 5 below, we see that a perfect flag formed on the GBP/USD 30-minute chart. When the flag broke up, you should be on the lookout for call opportunities. However, there weren’t any real trading opportunities on this timeframe. Yes, you could have taken a blind call trade when the market broke the flag, but it’s a little risky to do this. If you go down to a smaller timeframe, there should be some safer opportunities to buy the market.


Figure 5 – GBP/USD 30minute Flag

If we go down to the 5-minute timeframe, we can see a lot more detail of what is actually going on when the flag broke. This particular timeframe would have provided you with 2 clear buying opportunities. The first green arrow shows a beautiful hammer pattern which told us that the market was rejecting lower prices. The second arrow was yet another bullish engulfing pattern indicating large buy orders coming into the market. There were some other signals to buy, but I think you get the point.


Figure 6 – GBP/USD 5minute Buying Opportunities

Some Tips To Remember:

  • Choose a method to identify the trend that works best for you.
  • Don’t be a hero to try picking the top or bottom of a move.
  • Trade with the momentum of the larger timeframe trend.
  • Use multiple time frame analysis to your advantage.
  • Wait for the market to show its hand if you are unsure about the direction of the trend.
  • Don’t chase the market – buy dips in uptrends and sell rallies in downtrends.
  • Use confirmation trades to increase the quality of your trades.
  • Develop a trend trading strategy that suits your personality and stick with it.

That’s the end of the 3-part series, Trading The Trend. I hope you enjoyed it as much as I have. I have certainly given you a lot of information to absorb. Go over them until you understand them 100%. If you struggle with something, please feel free to ask me on the appropriate article and I will do my best to answer your questions.

Eduardo Lanni





October 9, 2015 at 12:12 pm

I just read the entire trading the trend 3 part series… It is definitely THE most valuable information I have read on any binary options website in a long time. Everything seems to make so much sense that you write. This last Part really got me thinking. I struggle to find trading opportunities but you have opened a whole new world to me with the examples you gave us. You could say I had a “light bulb” moment!

I’m truly grateful for all the time you put in to write such detail and all the charts you provided. I have already learned so much from you and I’m looking forward to each new article that you post. Keep on doing what you are doing man!

Dewey Colon





November 7, 2015 at 3:16 pm

I really enjoyed reading these 3 articles. There is so much information to take in and everything makes sense. I have nothing really to add to what you said. I don’t like trading with indicators so I think I will stay away from the moving averages and focus on trend lines and spotting the highs and lows. It seems easy to spot trends in hindsight, but I find it hard to see them as they develop. It will probably take some time and practice before I will be able to do that. I will not give up until I have cracked it. Thanks!

Taylor Simmons





November 9, 2015 at 10:10 am

Good articles Alex. If you are a newbie I will suggest that you follow these principles outlined in the articles and try to trade with the trend as Alex said. Your chances of success will be much higher, trust me.

I, on the other hand have taught myself how to trade with order flow on the charts. So say we are in an uptrend, but I see selling order flow entering the market I will enter a put trade. For me, it has been working quite well. The other great thing about it is that I get more trades trading this way compared to when I only trade with the trend. But as I said earlier, first get accustomed to trading with the trend and only then you can look to trade counter trend moves.

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