Trend trading is just a trading approach that gives the potential to reap greater profits by capitalizing on large market moves. You will find two main concerns working with trend trading; either the marketplace is trending upwards (bull trend) or trending downwards (bear trend). For the trend trader to profit, it is important to correctly identify the trend before a trade is placed.
In regards to trend trading, when the trade has been placed, the trend trader will often stay in the trade until such time so it appears the overall trend has changed.
Trends occur at different time frames and is seen on various time-frame charts. A pattern trader, being more a long-term trader where trades usually last a few weeks or even more, will likely define a pattern from analyzing a regular or greater time-frame chart. Minute charts may be used for fine-tuning entry, swing trading they actually wouldn’t be employed for determining the trend.
The time-frame of the charts used is vital to the trend trader. If the trend will be defined on a regular chart, it’s the weekly chart that ought to be used to ascertain when the trend has ended as well. Using this method, the trader is not exiting a regular or greater trend because the trend has changed on the lower time-frame daily chart.
There are lots of counter-trend moves that occur within a complete trend move. These are usually seen on the lower time-frame charts in respects the time-frame used to define the trend. For instance, if a regular chart is employed to define a bull trend in the SP500 market, you will see moves against this bull trend that will be obvious on a regular time-frame chart. The trend trader would normally stay in a trade even when the marketplace is moving against the career, since it is expected to recuperate soon if the trend is still intact.
Trend traders often use indicators including the moving averages to ascertain when to enter and when to exit. For instance, a pattern trader may buy when the 50-day moving average is greater compared to the 200-day moving average, and sell when the 50-day moves below.
For many traders, staying in a trade when the marketplace is creating a move from the trend direction is difficult to do. You need to stay glued to your guns and avoid reacting to the marketplace since it moves to erode your accumulated profits if you intend to be successful as a strict trend trader.
The other kind of trader to think about is the Swing Trader. Swing traders usually trade off the daily time-frame or lower (minute charts). Swing trading is about following the market’s almost certainly current direction. For new traders, swing trading can be quite a more effective approach because of the shorter amount of holding a trade and usually less exposed in risk capital. Swing trading is considered by many to be an easier and less stressful method to enter the markets.
The swing trader will often go long when the short-term market is confirming a swing bottom and looking to maneuver up, and going short when the marketplace is confirming a swing top and looking to maneuver down. Thus while the trend trader might be holding an extended based on a bullish weekly trend, the swing trader could be either long or short in this same period due to the direction the marketplace is currently moving in the lower time-frame.
With trend trading, the cons are clear. You should allow for possible large moves against your position when the trend is in a counter-trend phase. With swing trading, the cons are also clear. While the overall market is trending in a single direction, the swing trader will occasionally be trading against this trend that is often wrought with greater risk than trading with the overall trend.
Therefore, when contemplating the negative aspects of both trend trading and swing trading, why not simply use the best of both?
In order to accomplish this, it is important to ascertain first the overall trend direction much like the trend trader would do. So should you so based on moving averages as in the sooner mentioned example, then all your trades should only maintain that direction. Therefore, if the trend happens to be bullish, take long trades off swing bottoms and look to exit off swing tops rather than shorting them.
Several years ago I wrote a training document called the Guidelines that does in the same way I have described in this article. We first identify the present weekly trend based on the newest formation of a regular swing top or bottom in relation to previous weekly swings. When the direction is set, we look to only enter the marketplace going’with the trend ‘.
While swing traders will often apply several indicators in an attempt to ascertain when the short-term swing is occurring, I prefer to make use of mathematically calculated’turn dates’that provide the date concerning when these swings are usually to occur. Once this is known, we simply allow the marketplace to ensure the swing which signals the trade entry.