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25 mar

An effective way to make profits from stock market investments is to observe the current trend i.e., the direction in which security prices are moving. It’s a popular strategy used by traders to identify and take advantage of market momentum. If securities are exhibiting an upward trend, traders may want to initiate a new position or hold on to an existing position. Conversely, a downward trend signals the need to sell an existing holding. Many traders use trends as an indicator to place a trade. Since a trend particularly determines the direction of movement of share prices in the near future, it helps traders analyse how their portfolios or investments would perform in the future.

The trend trading strategy works by identifying a trend and placing a trade corresponding to the trend direction. It is usually considered a mid-term to long-term strategy but in theory, it can cover any time frame depending upon how long the trend is going to last. Traders using this strategy utilizes various tools and indicators to determine the momentum direction. The main purpose of trend trading is to use price actions to make profits. The strategy is based on the presumption that prices may continue to follow the given trend for a while. As the share prices rise, the trader takes a long position in anticipation that the upward trend will continue and takes a short position in case of falling prices. While using such strategies, traders often consider “book-profit” and “stop-loss” levels to lock in a profit or avoid big losses in case a trend reversal occurs.