Trend trading is easy. Wrong. It looks only to be easy in hindsight. If done right, it can be very lucrative. You can also do it wrong and then it is the opposite. One basic element for all kinds of trend trading is the stop loss. The advanced trend trader tries to enter the steepest trends that run the best. But experience and common sense tells us that a trend can reverse its course.
Common sense? Yes, a trend means that the market is all the time underestimating the potential of the move – that is why the trend is going on instead of jumping to the final price level at once. In the same manner the market can again misjudge the future now in the other direction for a long time. The trend has reversed. That’s why trend trading without a stop is impossible.
Using the stop loss technique has its toll. Either you set the stops wide and they get hit less often but incur a greater loss, or vice versa the trend trader gets punished with smaller losses but many of them.
Important for trend trading is the right entry into the right trend. If you are able to nail this one, you will easily pay the price for your stops and live on the sunny side of trading. Otherwise your stops will eat you. You don’t need stops? Don’t be a trend trader, or the markets will crush you!
At first you need a trading system. One that works and that fits to you. Trend Signal recommends three general methods of trading the trend:
- Day trading as the universal tool for entering trends at almost any point. This is the difficult one, but if you are mastering it, you will have the most flexible tool there is. Missing a trend will still happen, but less often than with all other methods.
- Automated trading for the investor who likes it convenient. Trading is reduced for you to selecting the right trends. The rest is done by your automaton.
- Swing trading methods place you in the middle of trader and investor. They offer some flexibility but not at the price of day trading strains.
Choosing the right trading method for you comes first. Perfecting it is the art of the trader. And being an artist is a lifelong endeavor.