What is a Trend?

What Forms a Trend

A trend is your friend, as every trader in this world knows, but the thing traders fail the most is how to identify a trend.

A trend is a series for higher lows or lower highs and can be bullish or bearish. In a bullish trend, market participants will look for support areas to buy call options, while in a bearish trend, market participants will look for resistance areas to buy put options.

A trend is visible by drawing the line of the trend, or its trend line and this should guide the trader in taking the right decisions as strong trends should always pick up steam when price is meeting the projected resistance or support.

A trend is more powerful when market is advancing with corrective waves rather than with impulsive moves and it should be mentioned that zigzags are the favorite candidates for channeling and, hence, for trending.

Unfortunately, markets spend a lot of time in consolidation areas and not in trending conditions. However, identifying a strong trend may be enough for healthy profits to keep warm for the periods of consolidation.

Trending with Elliott

In terms of Elliott Waves trading, a trend is always being associated with an impulsive move as there is the time market is moving. That being said, understanding impulsive moves and how market is traveling is key for identifying a trend.

An impulsive move it is formed out of five waves, or it is having a five wave structure and out of those five waves, three are impulsive as well. It means that the other two are corrective so when you’re looking for a trend that represents the moment one should start buying.

There are different levels where one should start buying a call option or adding to an option when it comes to Elliott Waves Theory and it depends very much on the wave the market is forming.

If market just finished the 1st wave and the second wave started, then the thing to do is to take a Fibonacci retracement tool and measure the length of the first wave. On a retracement more than 61.8% it means that is only wave a of a possible complex correction for the 2nd wave and that is a nice place to buy an option. If the first wave is a bullish one, then a call option is recommended. If the first wave is a bearish one, then a put option is recommended.

When it comes to the fourth and third wave relationship and correlation, it is said that the 4th wave is rarely traveling below 38.2% level when compared with the length of the 3rd wave. That being the case, then trading an option at the 23.6% and one at the 38.2% is key when wanting to find out the perfect place for the striking price. Again, if the third wave is a bullish one, call options are recommended, while in a bearish move for the third wave, put options should be traded on any retracement the 4th wave may make.

Speaking of trending, there is no trending without channeling and the first thing that comes to mind when it comes to channeling is a zigzag or a zigzag family pattern. Impulsive moves are rarely channeling but corrective waves yes.

When identifying a series of higher lows or lower highs, then it means a trend is starting to form and by the time a channel is being built, selling a touch of the upper side of the channel in a bearish trend (basically buying a put option) and buying the lower side of the channel in a bullish trend (basically buying a call option) is the thing to do.

Needless to say the expiration date should be directly correlated with the time frame the technical pattern is forming on.

Trending in General

Trending is a concept used for a market that is travelling, or moving, while ranging represents exactly the opposite. Adapting your trading strategy to different concepts and time frames is key.

For example, it makes no sense to look for trending on the five minutes chart if the North American session is coming to an end and the Asian session is starting, because Asian session is characterized by ranging and applying range trading techniques would be more successful.

If that is the case, looking at the bigger time frames is key and if a trend is identified on the hourly or even the four hours chart, then the consolidation in the Asian session should be interpreted only as a continuation pattern.

Practical Examples

There are more clues, tips and tricks on the two video recordings that are coming with this article as understanding the concepts and applying them correctly is key in successful binary options trading and in finding the right place to buy a call or a put option. After all, binary trading is a combination of choosing the right striking price and expiration date.