Learn How to Trade Stocks with the Trend
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Trend trading is one of the most effective stock trading strategies. It is also one of the simplest methods. Trend trading is a proven way to earn profits since it has been established that for years the markets have moved in trends. With a trend trading system, you can take advantage of both the ups and downs of the market and profit in both environments.
Trend traders take advantage of long term moves that play out in the stock market. Traders that use this method do not try to predict the future direction of the market. They simply jump in and enjoy the ride.
Determining the Trend
The series of "higher lows" and "higher highs" is a sign that a stock in an uptrend. In other words, each time the stock moves higher, it reaches above its previous high price. Each time the stock value drops, it doesn’t drop as low as its previous low. If a stock fails to reach a new high, or a stock makes a new relative low, then there is a good chance that the current trend may soon be broken.
Moving averages and channel breakouts can also be used to determine the general direction of the market. The easiest way is to open up a daily price chart and apply the simple moving average. The direction of the moving average can be used to determine the direction of the trend. It is important to use multiple time frames when determining this direction. In determining an uptrend, I like to make sure that the 10 day simple moving average is greater than the 20 and 30 day moving average.
Instant Trend Analysis
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Entering a Trade
Don’t try to catch the bottom! Wait until the trend probably establishes itself before entering the trade. If the stock is not making higher highs and higher lows, then the trend has not yet been established. It is also important to analyze the trend of the sector. While back testing my trading strategies, I found much better results when trading with the trend of the sector ETF as well. A great place to enter a trade is on a pullback from a new high.
Exiting a Trade
Get out of your trade once the trend is broken! If you notice a moving average crossover, or a broken pattern of “higher highs” and “higher lows”, then the trend may soon be broken. Cut your losses, and let the long rides make up for these small losses. You can re-enter your trade once the trend has been reestablished.
A common rule of thumb is to risk 1-3% of your total account value with each trade. Trading size should also be reduced in periods of high volatility. It is very important to preserve capital until a more positive price trend reappears – not only in the security that you are trading, but the overall market as well.
Use stop loss orders to help minimize losses. Have it planned out before you enter a trade. This can be adjusted in order to maximize your gains.
Use the Trend of the Overall Market
Don’t try to fight the trend of the overall market. If the S&P is in a strong uptrend, it would be much riskier to short stocks than it would be to buy stocks. Here is my general rule: If the 10 day simple moving average of the S&P is greater than its 30 day exponential moving average, I’m long. If not, I’m short.
The most important thing to remember is to ALWAYS trade with the trend!
Free Course
Learn how to spot Mega Trends by signing up for a Free Mini Email Course. You will learn the tools and strategies you need to increase your success rate in the marketplace:
(1) The importance of psychology in price movement
(2) How to spot mega trends
(3) Understanding of technical price objectives
(4) How to picture price objectives
(5) How to trade with moving averages
(6) How to use point and figure trading techniques
(7) How to use the RSI indicator
(8) How to correctly use stochastics in your trading
(9) How to use the ADX indicator to capture trends
(10) How to capitalize on natural market cycles.
Plus, you will you will learn all about fibonacci retracements, MACD, Bollinger Bands and much more.
Click here to fill out the form and we’ll get you started right away.