Trend Trading Software: How It Works
Trend trading software is built to profit from forex and other types of trading trends in order to make money. In most cases the trading is automated, which means that the software acts as a robot that will go ahead and trade for you through your brokerage account, any time that you have it connected.
However, it is possible to develop a system that would simply analyze the markets and provide you with a signal when a trend was identified so that you could trade manually, if you prefer. Some companies providing forex signals have programs that work in this way, although they are not likely to reveal the details of exactly how their trend trading software operates.
A price movement is not usually called a trend if it is very short term. Usually you would expect a trend to continued over the medium to long term, that is, at least several days. Sometimes it might continue for many weeks. In currency trading, usually there would be strong economic reasons for a downward or upward trend, especially if it was long lasting. A major financial crisis could produce a downward movement spanning several months, followed by a slow recovery that could take place over a year or longer.
‘The trend is your friend’ is one of the best known catchphrases of financial trading. Identifying an emerging trend in the early stages is one of the best ways to profit from forex or stock trading. Most beginners are advised to try to identify trends using charts and indicators.
Candlestick charts are commonly used for this purpose. The slope of an upward trend is shown by plotting the low points of the candlestick shadows, and the slope of a downtrend is shown by drawing a line through the high points of the shadows.
Some traders also talk about ‘sideways trends’ when the prices are fluctuating between two points relatively steadily. In this case lines drawn through the high and low points of the shadows will be approximately horizontal, not converging or diverging. However, others consider that this type of pattern should not strictly be called a trend.
Looking back, it is easy to see the moment when a trend began. But looking ahead into the future it is harder to be sure when you have a trend and when you have a minor fluctuation. Two candlesticks do not make a trend! We all know this, but if you are plotting trend lines yourself manually, it is very tempting to think that you have a pattern before enough evidence is there.
This is where trend trading software can help you, by taking out the human element and producing signals only when all of the conditions are in place.