Trend Trading Strategy: Identifying Trends in Crypto Market

Intro

Behind every price movement in the crypto market, there is a preference by traders and investors regarding the direction that they expect assets to follow. This preference shared among the majority of participants in the crypto market will form a trend.

The trend is essentially a sustained movement of the price in a particular direction. The price must rise or decline during some prolonged period to call it a trend, however, it will also depend on the trading style.

A strategy based on trend trading focuses on identifying and following that market direction. In this article, we will discuss the principle that markets tend to move in trends over time, and how to identify those trend seasons.

What Is A Trending Market: Understanding Price Directions

In the crypto market, the trend is a season where traders follow the price moving in a specific path: increasing or decreasing. Price will move up or down when there is enough conviction by the majority of investors aiming to capitalize on the direction the market is moving.

The direction of the price a market establishes responds to various factors riding the interests of traders and investors. Those factors can be the fundamentals behind a project, market news, or technical indications.

Prolonged trending markets in a particular direction can have short-term price retracements, marking a reversal trend in the middle. Following a trend is not about predicting a beginning or an ending point but detecting the overall trend and when to enter it while avoiding those middle-way price movements.

It is also important to remark that the middle of a trend is where the crucial movements happen, as these movements will determine if the trend continues or is already over.

Understanding Crypto Market Trends

For trend trading to work in crypto markets, it is crucial to understand the forces moving a coin. As with traditional securities, cryptocurrencies are an option for traders and investors according to the project backing them up. However, crypto markets carry unique dynamics due to their inherent volatile characteristics.

Crypto markets can be affected by sharp movements due to their openness to almost every person who wants to participate in trading a coin. But as institutional investors are getting in, the trends are more notable.

Something to remark on crypto trends is the dominance of Bitcoin over the rest of cryptocurrencies. Generally, when Bitcoin goes up or down, the rest of the cryptos follow the move with just some exemptions.

Identifying Trends In Crypto Market

Identifying a trend involves analyzing several aspects of the market, from technical to fundamentals, as well as market sentiment or news, and keeping up to date with project updates.

The first things you would be interested in looking for when spotting a trend are:

1. Consistent movements in a particular direction.
2. Higher highs alongside higher lows for the case of an uptrend.
3. Lower highs alongside lower lows for a downtrend.

Chart analysis and candlestick Patterns

By analyzing charts, traders can evaluate the historical directions of the price, identify previous trends or recent market structures, and detect current candlestick formations or chart patterns.

Relevant candle patterns for reversals in trends:

• Engulfing bullish and bearish candlesticks.
• The Morning Star and Evening Star.

Relevant candle patterns for continuations in trends:

• The Bullish Pennant.
• The Bearish Flag.

Chart Patterns in Trends:

• Head and Shoulders for a reversal from the upside to the downside.
• Inverted Head and Shoulders for a reversal from the downside to the upside.

Market structure

An accepted conception among traders is that the market moves in phases:

1. Impulse or Momentum: When the price starts decisively moving out from a range in a particular direction.
2. Accumulation: This is a ranging phase that precedes a continuation move of the trend.
3. Distribution: This is a ranging phase that precedes a price reversal move during the trend.

Detecting those phases in the market structure can help traders anticipate what is upcoming in a trend, whether it is likely to rise or decline the price.

Trends and Timeframes

The trend trading strategy suits different timeframes and can be integrated into various methods, like scalping, day trading, and swing trading. Substantial price movements in larger timeframes will reflect longer trends in the shorter.

Two approaches can emerge from this:

1. Scalpers and day traders can use larger timeframes to meet their short-term goals.
2. Swing traders can use shorter timeframes to engage with a trend at more beneficial prices.

Trading styles for trends

Depending on the trading style, the trend strategy can offer beneficial opportunities. Let's describe every style, remarking on how they can be used for identifying trends:

• Scalping: Scalpers are fast-paced traders seeking very short-term trades that last from seconds to minutes. They can spot a big move in a higher timeframe, like 15 minutes, to engage in a brief trend in a 1-minute timeframe.
• Day trading: This type of trading looks for price movements within a day. Day traders can engage in a trend for hours or several minutes. They can use daily charts to spot a substantial move and follow a trend for a particular day session. Also, they can await the closing hours of a session and engage in a closing trend by applying the End-of-Day strategy.
• Swing trading: Swing trading could be the best approach to getting the best out of a trend since this method aims to engage in a trade for several days or weeks. Traders and investors could identify and follow trends by using technical and fundamental indicators.

Example of a crypto trend: identifying fundamental and technical indications

The launch of Spot Bitcoin ETFs in the US was a fundamental indication of a coming uptrend, causing a momentum phase when the news was released, and in the middle, an indicator like RSI spotted several reversal points as BTC then faced a range phase within the general trend.

Conclusion

The trend is a central concept for engaging in crypto markets, and the trend strategy is a complete approach to understanding how markets work. We addressed how trends manifest in crypto markets and how identifying a trend implies analyzing concepts like market structure, trading styles, and timeframes.

In Altrady you can start identifying trending markets, applying the methods discussed here. Enroll in a free trial by signing up for live or paper trading.