Trend trading (or trend following, as it is also known) is a form of trading that attempts to identify and capitalize on the price direction of a security. Through technical analysis, trend traders identify an uptrend (increasing price) of an asset, or a downtrend (decreasing price) of an asset, and enter either long or short positions based on the price movement. Ultimately, the goal of this type of trading is to identify an established trend or one that is about to commence, enter a trade, and exit before the trend ceases. 

Swing trading is a form of trading that holds a financial instrument (such as stocks) for several days or even months in an attempt to profit from price fluctuations, or “market swings”. Swing traders utilize technical analysis to determine market swings. The essence of swing trading is buying or short selling stocks to capitalize on these small market swings.

Trend following is simply another term for trend trading. In particular, trend following is a common strategy used in commodity trading. Commodities are physical assets such as agricultural, mining, or energy products that can be bought and sold. These interchangeable goods are traded daily in the commodities market. In the US, there are commodities exchanges located in New York (New York Mercantile Exchange), Chicago (Chicago Mercantile Exchange), and Atlanta, Georgia (the Intercontinental Exchange).

The MACD is an acronym for “Moving Average Convergence Divergence”. This is a technical indicator that is a popular trend trading strategy, which assists traders in recognizing trading opportunities. 

It is comprised of two moving averages: the MACD line and the signal line. If an asset’s MACD line crosses above its signal line, this denotes that the price may increase, thus an optimum entry signal for a buy trade. Conversely, should the asset’s MACD line cross below its signal line, this could denote an optimum sell trade.

The Relative Strength Index (RSI) is a momentum oscillator that gauges fluctuations in the price of a security, and the speed with which that change occurs. The RSI usually tracks an asset’s price movement over a two-week period, from 0 to 100 - 70 or higher often denotes an uptrend, while 30 or lower denotes a downtrend.

Stocks are either traded on stock exchanges or privately. Suppose, for instance, Company X makes very good chocolate. Company X’s products are so popular, that it wants to expand so it can sell its chocolate globally. Therefore, it must raise capital for the endeavor. Typically, to raise capital a company either takes out a loan, or issues shares of stock (deemed “going public”). Thus, by selling shares of stock to investors, Company X can raise capital without going into debt. 

Say Company X wants to raise $1,000,000 to expand globally, and decides to issue 1,000 shares of its stock - thus, each share will represent 1/1000th of the company. When Company X goes public at the IPO (initial public offering), each share will therefore be worth $1,000. Presuming that Company X’s profits begin to increase, then its stock price typically will also rise. Conversely, should Company X’s global expansion not prove successful, then its value could decline, as could the market value of the shares.

There are three key factors to take into account when reading stocks. 

1) When looking at a stock chart, gauge what the trend of the stock is. Whether the share price is increasing (uptrend), decreasing (downtrend), or essentially a sideways drift where there is little fluctuation in price.

2) Pay particular attention to the price and volume of the stock. Ultimately, it is large institutional investors that influence whether a stock price will rise or fall, by either buying or selling large quantities of specific stocks.

3) Determine whether a specific stock is being supported by large institutional investors such as fund managers, for example, or whether it is meeting resistance on an uptrend.

Ultimately, there is no guaranteed fail-safe strategy when it comes to trend trading. Yet, any trend trading strategy must recognize the optimum trade entry point and exit level, in addition to implementing a stop-loss close to control risk. Some of the best and most popular indicators for trend trading include the MACD, Moving Averages, and the RSI.

The MACD (Moving Average Convergence Divergence) indicator tracks the trend of a specific security’s price. This technical indicator is used as a trading strategy that assists traders in recognizing trend trading opportunities. 

A Moving Average is an indicator that plots an asset’s price movement over a set period of time, such as 20, 50, or 200 day periods. Simple Moving Averages (SMAs) are indicators utilized in technical analysis. SMAs enable a trader to easily analyze the price trend of a security. This indicator supplies both support and resistance levels which could be signals denoting optimum trade entry and exit points.

The Relative Strength Index (RSI)  is a momentum oscillator that gauges fluctuations in the price of a security, and the speed with which that change occurs. The RSI usually tracks an asset’s price movement over a two-week period, from 0 to 100 - 70 or higher often denotes an uptrend, while 30 or lower denotes a downtrend.

Trend trading utilizes technical analysis to identify an uptrend (increasing price) of an asset, or a downtrend (decreasing price) of an asset, and enter either long or short positions based on the price movement.

Day trading is a form of trading that holds an asset for a single trading day, in an attempt to profit from price fluctuations in the markets. In theory, by closing all positions (or “position squaring” as it’s also known) on the same day, day traders avoid the risks involved with holding a security for the long-term. 

Stocks are the most common securities involved in day trading. However, other day-traded securities include currency, futures, options, and commodities.