One of the most popular sayings in the market is “the trend is your friend”. It is not merely popular and accepted among traders only because of how it sounds but also because it is a fact.
An error most traders face in their trading journey is trading against a trend up to the point of taking their account balance to the ruins. Learning to anticipate, spot, and follow a trend is a valuable skill as any other for trading markets.
For crypto markets, this ability is more than valuable since there are hundreds of rising coins in the market today. However, most of these coins can be exposed to high volatility most of the time. Volatility represents opportunities for riskier traders and strategies but when it comes to trends, high volatility can damage the market sentiment.
Supply And Demand: Understanding A Trending Market
There are two forces that face each other in the market every day, they are called: supply and demand. These two concepts set the foundation for understanding why the price moves in a specific direction and how it moves.
- When the price of an asset is moving upward, it is assumed that the buyers are entering the market, thus there is demand.
- When the price of an asset is moving downward, it is considered that the sellers are taking action, hence there is supply.
The relevant point here is to understand that when supply is more than demand, the asset’s price will experience selling pressure, pushing the price down.
However, when demand is more than supply, the price will encounter buying pressure, making it go higher.
These two concepts will be turning around as the price advances during a trending market.
How Do Trends Work?
As the trend keeps its prevailing direction, the price will encounter key resistance levels, which represent supply, or key support levels, which represent demand.
During a trending market, traders will look for cheaper prices to seize and enter the trend at the lowest cost. This will be possible given the dynamics offered by the supply and demand forces.
Check out also: Trend Trading Strategy: Identifying Trends in Crypto Market!
Strategies for Trending Market
To take advantage of the dynamics presented by a trending market and to follow it, traders can exploit to approaches:
- Buying the breakout for a continuation.
- Buying the pullback.
By implementing the breakout strategy, traders can buy right after the breakout of:
- Support levels during a downtrend.
- Resistance levels during an uptrend.
By implementing the pullback strategy, traders can buy when the price retraces toward cheaper levels, they can enter the trend when:
- Detect a moving averages crossover in favor of the prevailing direction during a pullback.
- Spot a candle pattern emerging from a pullback.
Conclusion
The art of following trends, contrary to seizing volatility, can present traders with different ways to approach the market in a clearer condition as the price follows a direction during a period. By understanding how supply and demand work, trend traders can develop strategies for breakout and pullback entries.
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