Trend Trading Is About
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Successful trend trading means taking a position only after the stock goes up. How close the price is to its 52 week high doesn’t matter. Do the prices represented on that stock chart form an acute angle? If yes, and there are no aberrations in terms of whacky volume or choppy price bars, you may want to take a position.
When do you sell? When the price drops. After which, more some traders may consider a short position. We are not looking to time the market. Trend traders are willing to give up some profits by buying a little late and selling a little late. They want to capture profits in the middle. The safety zone.
What if the stock is trading sideways? You sit on the sidelines or find another stock. Trend traders do not engage flat markets. It ties up capital and when the stock does make a move you could be on the wrong end. Why attempt to predict the future? This is about taking advantage of what is already happening. With a little luck, it may continue to happen.
Is That A Trend or What?
• Trend traders don’t try to predict the market. If they see a stock whose price is in the process of going up, they trade it.
• The fact that they will be wrong is a given. Protective sell rules of 8% will be in place on all trades.
• The less you trade the more money you make. Upwards or downward trends will have ebb & flow. If you trade those, you're swing trader. I believe it's easier to ride a trend.
What are some signs the current trend is ending? Trends end in a climax. Volume takes a marked increase. The public is trying to jump in at the last moment and Wall Street begins to unload inventory. The prices will become volatile. The range of the highs and lows will be wider than previous bars.
CLICK THIS - Free Trend Analysis On Stocks, Forex or Futures
What market indicators should I look for?
When the 50 day moving average crosses the 200 day moving average you may have confirmation of an uptrend. I say "may" because, you never know. When the opposite occurs you have a downtrend.
Some traders don't use two moving average crossovers. If the price breaks through a 50 day moving average, that might be their confimation.
While the trend is in progress traders will use different shorter term moving averages to watch for any breakdown.
I’ve seen traders use the 10 day, a 20 day and of course Stan Weinstein uses the 30 day. It's all about preference.
An indicator of the overall market is called the VIX. This is the Chicago Board Options Exchange Volatility Index. It represents the markets expectation of a 30 day volatility and is made up of S&P 500 options. VIX is also known as the “fear index”. It is calculated from calls and puts and measures market risk. As the VIX rises, investors are getting fearful. As the VIX falls, investors are complacent.
Where the VIX is compared to its 10 day simple moving average gives insight into the overall market sentiment. The higher it is above the 10 day MA means the market is oversold and a uptrend rally may be near. The lower the VIX is below the 10 day implies the market is overbought and a downtrend or even sideways may be coming.
This is one of several guages to determine short term market sentiment. Albeit, an important one.
Bottom Line: Go long when the VIX is above it's 10 day moving average.
The existential rule of a trend trader:
Traders who try to predict the future operate in a place that doesn’t exist yet. If you place your abilities there, you will miss opportunities that are happening here and now. Stay in the present.
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