Tuesday, May 31, 2011

Recognize the Trend

Most of your trades should be in the direction of the Trend. Traders must try to take every With Trend entry and rarely take Countertrend entries, The earlier you see the trend, the more money you stand to make. If the trader is looking to take a countertrend move, he may find that he has missed out on the more important trend move.

It is for this reason that I suggest traders should have a view for the day. If the view is bullish then focus on the buying opportunities. It is likely that you will miss out on some intra day selling, but you will be taking the main trades which are in the direction of the trend.

Once you realize that the market is in a strong trend, you don't need a setup to enter. You can enter any time all day long at the market if you wish with a relatively small stop. The only purpose of a setup is to minimize the risk. This idea applies not just to day trades but also to swing and position trades. When you identify a strongly trending stocks, enter whenever you want, with a properly defined stop loss.

Inside a strong trend, low risk entries come with pullbacks. These pullbacks come in many forms. There are many types of pullbacks that can occur in a trend, some shallow and others deep. The most common pullbacks occur when prices touch a moving average or trendline. It is possible to take a trade with a stop just beyond the average or the trendline. This gives a low risk opportunity to enter an ongoing trend.

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