Stocks

Tips for Trend Trading

BrandonWendell
Brandon Wendell
Instructor, CMT

Many people have the misconception that trading has to be complicated since so few people are truly successful at it. Truthfully, people fail at trading because they over-complicate trading. Trading is not easy by any measure. However, it is simple. Online Trading Academy’s core strategy depends upon a simple, proven approach that works by trading the way that institutional firms trade.

Free Trading WorkshopTake the trend identification for instance. Successful traders are aware of the importance of identifying the dominant trend for your trading time frame as well as the larger time frame. In our courses, we use the definition of a trend to help decide the direction in which trading would be most profitable. Identifying and trading in the direction of the dominant trend will put you on track for more profitable trades and reduce your risk.

Looking at the chart of the Qs, you can see that the trend was easily identified as downward as prices plummeted at the open. Price opened at a supply zone offering an opportunity to short. If you did not exit as prices started to turn upwards from $100, the higher lows and higher highs signaled a trend change that would have told you to book your remaining profits.

How to identify market trend on a chart
The day’s trend had changed. The introduction of higher lows and higher highs changed the direction to bullish. Traders should not have looked to short again until the trend told them to. That trend change did become apparent later in the morning when prices made lower highs and lower lows. This made it possible for the trader to look for shorts. If you had identified this, you would have been able to short the mid-day supply zone for an additional $1.00 per share profit.

Learn to chart stock market trendsSome of you may have been worried about the larger daily trend and how it would affect the intraday trends. In our courses, we also teach the proper way to use multiple time frames in trading. Even though the daily trend may not change, the smaller time frames can experience many fluctuations throughout the day.

This same technique can be used on longer term trading or investing. Looking at the S&P 500 index on a weekly chart, using the definition of a trend would have helped to identify major changes in the market trends and also protected your money in times of economic downturn.

Identifying a change in trend on a short time frame chart
Looking at the current trend of the S&P 500 on a monthly chart, the bullish trend that began in 2009-2010 has not only appeared to have ended, but the lower highs and lower lows suggest a new bear trend beginning. This has not occurred since the market crash in 2008.

Identifying a change in trend on a long time frame chart
Trend trading like this will not allow you to enter at the extreme tops or bottoms. To do that you will have to practice at identifying supply and demand zones in conjunction with multiple time frame analysis. To learn more about this, come take one of our courses at Online Trading Academy.

Disclaimer
This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.