Trend trading is one of the most reliable stock market trading approaches. It is as well one of the simplest techniques. Trend trading is a proven way to make an income because it was established that for years the stock market has motivated in the trends. Having a trend trading system, you will take advantage of both the ups and bottoms of the stock market and also gain in both environments.
Trend traders to take advantage of long-term moves which play in an market. Traders utilizing this process does not try to predict the future direction of market. They just jump in and enjoy the ride.
Determining the Trend
Moving averages & channel breakouts can be utilized to verify the general direction of stock market. The simplest is to open the table of the costs every day and apply the easy moving average. The direction of moving average should be considered to determine the direction of trend. It is important to utilize multiple time frames to determine this direction. To determine an uptrend, I assure you the day 10 simple moving average exceeds the average of the 20 and 30 moving day.
Entering a Trade
Doesn't attempt to catch the bottom! Wait until the trend establishes by itself most likely previous to entering an trade. If stock is not making higher highs and higher lows, then the trend has not yet been established. It is also important to examine the trend of the sector. Although my back testing trading strategies, I found better results when trading with the trend of sector Exchange-traded fund as well.
Leaving the Trade
Quit of the trade once the trend is broken! Cut your losses and leave to travel long distances to compensate for those losses small. You will reenter an trade if the trend can be restored.
Risk Management
Trading dimension need to be reduced in periods of the high instability. It is very important to preserve capital until the price trend more optimistic gains - not just the protection you're trading, but the overall market as well.
Make use of the Trend of Overall Market
Do not try to fight the trend of overall stock market. If S&P is in a strong uptrend, it will be much riskier short stocks that it would purchase shares. Here is my general rule: If the ten day simple moving average of the S&P is bigger that thirty days of the exponential moving average, I am long. If not, I am short.
Probably the most significant thing to recollect is to ALWAYS trade from the trend!
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