trend trading

Of the many stock trading systems used in the stock market, Trend Trading is always in style.

Trend indicators and technical analysis trading have proven to be of excellent use in amassing enormous wealth for those who do it capably.

But, to be successful in trend trading, education and preparation regarding trading indicators are essential.

Also of utmost importance is the exercise of a strict system of trading rules and the obedience to its trading rules.

The rules of your trend trading system must be adhered to with unwavering and absolute dedication.

Only after that trend trading will become your instrument and your willing servant to unspeakable success.

Listed below are some of the main trend trading edicts

• It is essential to trade with the trajectory of the Trend. This is the main principle of Trend Trading. This is the main imperative of trend trading. Keep it sacred! Do not violate this rule. In technical analysis, the trend is your friend. As much as 90% of your technical analysis would actually be determined by the trend. So stay with the trend until the trend reverses. There are ways to identify reverses. Not every pullback is a reversal. Recognizing and staying with the trend is the most important part of your strategy. Things in motion usually stay in motion and this is usually correct for the stock market. In other words, don’t buy a bull market lest you receive a reversal signal and don’t buy a bear market unless you receive a reversal signal. It is true that you are going to miss selling precisely at the top or buying precisely at the bottom. However, when you spot a trend forming, you will enter early enough to generate a lot of doe. In the meantime, you’ll avoid the agony of trying to predict the highs or lows, missing them, which you almost always will, and experiencing terrible repercussions as a result. The tops and bottoms are only identified after they have been made. Trying to predict tops and bottoms is usually a crazy and risky hobby and you can get your head chopped off.
• You want to trade stocks where you have also completed a fundamental analysis to find out what the company does and what its financial health is. There are usually a number of frothy corporations with mediocre fundamentals that can show great chart patterns. Beware of these because they will eventually submit to the facts of your state of affairs and your poor fundamentals. As soon as that happens, they come back to earth with a ferocity that can really hurt, in case you could discern the reversal and participate in that development by buying Puts. Therefore, knowing the fundamentals of a company is very important for our technical analysis purposes. Although pure technical analysis will not deal with the fundamentals, we want to give ourselves all the benefits and that is an added layer of benefit. So again, don’t buy stocks until you know what the company does.
• In technical trend trading, you want to trade energy markets where daily volume exceeds 500,000 average daily shares traded for the particular stock you are interested in. Also, you should trade where the action is and never with idle stocks that are going nowhere, even if they have the best fundamentals, the best volume, and the best stocks on the planet. If there is no price push, stay away from it. We want movement, preferably upward movement. A great place to start looking for stocks with price momentum is to look at stocks that are making yearly highs. There is a daily record of these on virtually any stock information site. Stocks making new highs are definitely an automatic indication that they are in an uptrend. 2 things usually happen at this point that are very important in Trend Trading and at the heart of your analysis and execution: a breakout or pullback. The pullback may simply be a consolidation to continue its uptrend or possibly a reversal. Recognition of a reversal will be discussed later. A breakout or reversal is usually corroborated and driven by above average volume. This is really the sweet spot of Trend Trading. This movement could be fast and violent. It is a good place to be and creates a lot of money quickly for traders and investors alike.

Terms in trend trading and technical analysis

An uptrend is manifested by higher highs and higher lows.

A downtrend is understood as lower highs and lower lows.

A reversal to an uptrend is a higher high and a close below the previous low.

A reversal to a downtrend is a lower low and a close above the previous high.

When a stock breaks, it breaks above what was originally a ceiling for it. When it explodes, it has no ceiling above it as resistance. The longer it takes to break a top, and the more attempts are made, usually means stronger support on the downside.

Price levels that are tops to the upside become support once the stock price breaks above that top. Old roofs at the top usually become new supports at the bottom.

To reiterate:

• Trade where all the momentum goes. Limit your losses and let your winners run.
• By instinct, we want to buy when things are cheap and getting cheaper. Consequently, there is a normal temptation to buy a stock when it is going down because it is getting cheaper. However, the lure of buying just because it is becoming less expensive has hurt many traders and investors. Anytime a stock is falling and you buy more, it’s often foolish unless you’re approaching solid resistance and want to risk getting ahead of a reversal. Don’t do it if it’s in free fall. Down stocks typically continue to fall and rising stocks typically continue to rise until they signal a reversal. In fact, if you’re just starting out, don’t even try to get ahead of a change. Get winning shares! Out once they stop winning!

In agreement! In agreement! Do not be impatient! So now you know a few things about Trend Trading. How do you use that awareness to your advantage and profit handsomely?

Good question! Here’s how: understanding and following with a religious devotion and working out certain entry and exit rules.