trend trading

TRENDTRADING–PRESENTEDBYTHEWILDINVESTOR© 2009 1

Report:TrendTradingAwholelibrarycouldprobablybecreatedtohousetheinfinitemethodsofinvestinginthestockmarket.Obviouslythegoalistofindthebestonethatyouunderstandhowtouseandtheonethatbringsinthemostprofit,ofcourse.Whenitallboilsdowntoit,tradingstockscanbeassimpleasyouwantittobe,andthatiswhatIamabouttosharewithyou:theideaofthetradingtrends.Basicallythetypeoftradestatesthatstocksdonotmoveinsimpleupanddownpatterns,ratherthereareup,down,andsidewaymovements.Allthreeinputsarewhatcreatethreedistincttrends.Takingthisfurtherwefindoddsofaslumpingstockislesslikelytojustskyrocketbackupbeforeexperiencingsomeformofsidewaysmovement,alsocalledconsolidation.Whatisthesignificanceofallthis?Ourriskhasbeenminimizedgreatly.Withthetrendtrading,wearenotlookingtospottopsorbottoms,butwearelookingtolockinonthestockafterthenewtrendhasbeencreated.Wewaitforthestocktobuildafoundationintheconsolidationperiod,andthenjumponitafterthestockbreaksoutofitssidewaystradingrange.Thebeautyofthetradingtrendsisthatitallowsustoavoid“fake”trends.Howmanytimesdotradersthinktheyhavecalledabottomonlytogetdupedinto

thestockheadingevenlower,whichresultsinalosstrade?Onceagain,bywaitingforthesidewaysmovementtocomplete,wecanseewhetherthestockisactuallyplanningoncontinuiningthelowertrendorifthestockis,indeed,headingtowardsanupwardtrend.Forthetrendtrade,ourpricetargetisatthespotofresistance

orsupportofwherebreakageoccurs.Thatpointthenturnsintothesupportorresistance.

2 TRENDTRADING–PRESENTEDBYTHEWILDINVESTOR© 2009

IntheexampleofEnergyConversions(ENER),weseethestockeventuallyhitapointofresistance(higherblueline).Manypeoplewouldjumpattheconclusionthatthestockhadtoppedout,sotheymightpossiblyshortthestock.Laterdowntheroad,ENERcreatedthesupport(bottomblueline).Nowtheseshortersprobablygotscaredandtriedtocoverthemselvesbygoinglongandspendingexcessmoneyoncommissionsandotherlosses.Thebottomlineisthatwedonothaveaclearsenseofwhichdirectionthestockwantsgo.Intheexampleofthefirstchartabove(INDU),weseethechartgointoaconsolidationperiod.Atthattime,manypeoplethoughtwehitabottom.Theproblemwasthatweactuallydidnot.Infact,wejustcreatedaevenstrongerdowntrend.Overallthetradingtrendsismeantforthoselookingforasimpleandlimited­risktradingmethodthatallowsthemtoprofitoffsolidtrends.Usingothertechnicalanalysisandchartpatterns,wecanobviouslyextendouruseoftrendtrading.