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TREND TRADING
Earlier in this eBook I discussed Trends and their fractal like nature in some
depth. In my own mind at least, I consider what I wrote there to be some
brilliant concepts in regards to the topic of trends. There I also stated many
useful implications for trading, but here I will try to add a few more insights.
As stated before, “Trend Following” strategies are what make you successful
as a trader. All trades somehow capitalize on trends as the price moves from
where you entered to where you exit; some trends being more obvious than
others. The trader’s cliché is true, in that the “trend is your friend” while you
are moving towards greater profits, “until it ends” at which point you need to
quickly get out. You could conceivably trade (mostly by luck) without being
aware of the trends, but by following the trends you’ll consistently be able to
capture substantial gains. Being able to trade through the duration of a trend
will allow you to maximize the possible gains. Thus the trick is to be able to
get in early on a trend and to stay as long as possible on it.
Getting On Early
Earlier in this eBook I offered you many valuable suggestions on how to find
trends (in various scales). Ideally a trend will start supported by multiple
“reasons” in various chart scale perspectives (but not always that many clear
reasons), and you spot the commencement of a new trend by the death of an
old one (a trend reversal), so look for common trend reversal patterns
too. Remember that a sideways consolidation is considered a sideways trend,
and it ends by a breakout (same thing with triangles and other confined
patterns).
Once you find the beginning of a new trend then you may trade it by just
about any trading method that seems appropriate to you for the specific
circumstances you are faced with. There is no standard trading entry method
for trends, thus make use of any suitable trading methodology I taught you in
any of the eBooks. The key is to get in on a trend at strategic places (i.e. near
trendline bounces, Fib retracements, or other “lows”) using whatever trading
method suitable, and preferably with as small a trade as pragmatically possible
so as to ultimately shoot for the best risk-to-reward ratio possible (and the
smallest loss). Obviously the chart scale you are trading off of will also
dictate to you what kinds of trades you can and can’t do (mostly due to the
restrictions of your equity management rules). The objective is to get on
board a trend, and though you don’t know how long the trend will last, you
hope to “let your boat sail” for as long and far as possible (however long the
trend).
Staying The Course
While in a trade sailing along within a trend you will need to monitor how
your trade is going. Obviously you’ll want to trail your stops (discussed later
in this eBook) and keep a sharp eye out for any indications that your trend is
ending (reversals).
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Earlier in this eBook I extensively explained the concept of “S.E.X. Lines”,
which is a valuable tool for monitoring your trend. As a trend begins your
S.E.X. Lines open up in the direction of the trend, and the various line pairs
act as a kind of moving trendline. Notice how the market bounces off of those
various pairs of lines, and even penetrates them. After observing them you’ll
learn how to gage such bounces and even the penetrations, which frequently
happen during a Fib retracement. In addition to your line pairs acting as a sort
of moving trendline you also have the feature that the pairs themselves
function sort of like a MACD indicator; as the market moves faster the pair
lines will diverge, as the market slows the lines will converge, and even cross
if the market slows to a stagnation or even begins dipping down. All this
information, in conjunction with other “reasons”, particularly where the
market price is in relation to the trendline, will give you valuable insights into
what is going on with your trend, and with your trade.
Burying Your Friend
Sooner or later your trend will inevitably have to end. Hopefully you’ve
found “reasons” that would lead you to anticipate the end of your trend near
around where it did actually end (i.e. maybe with a Gartley or a previous
high/low offering support/resistance). Regardless of whether you accurately
predicted where your trend would end you act on the reversal signals (i.e.
trend breaks, reversal patterns, S.E.X. Line bunching on larger scale charts,
whatever). You either try to “scalp” your exit as near the top as you can, or
you simply let yourself get stopped out (aggressively tighten your stops if you
see a likely reversal).
Once your trade is over then you watch the market like a vulture looking for
the next easy trade you can scavenge.
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