Trend Trading Strategy Walking A Mile With The Crowd
Trend is your friend. Good traders, never trade against a trend. Always trade with the trend. A trend is formed when the prices of stocks, securities or currencies steadily move upward or downward in a clear manner. When a trend is formed, it may continue from a few weeks to a few months or even longer.
Your objective as a trend trader is to identify a trend and to stay with it while the trend stays. A trend can be long term and highly profitable. Trend trading is designed to capture the capital appreciation that comes with the steady rise in the prices.
Now, trends can be fast or slow. It can be short term lasting days or weeks or medium term lasing several months. It can also be long term lasting several months or even year. A stable trend shows a steady rise with low volatility where daily price extremes stay relatively constant. But when price moves start to expand or in other words volatility increases it is an early indication that the trend is becoming unstable.
Many trader define trend trading as price action where the current short term average price is higher than the average long term price. Trend trading is profitable, no doubt about it. But the problem comes how to identify the trend at an early stage and how to identify when it is about to reverse itself. Most traders can't identify the trend. Delayed entry and exit make it unprofitable. Since most of the technical indicators give a delayed trading signal, most traders are late when they enter the trend. Already the profit has been lost in most cases. Similarly, the exit signal is also delayed. So you are in the trade when the price action suddenly reverses and prices fall rapidly taking your accumulated profits with them.
Now, you can understand the importance of identifying the trend in real time. This time lage between the start of the trend and the entry is not good. Similarly the time lag between the reversal of the trend and your exit is dangerous as price tend to climb slow but when the fall they fall like a rock with a sudden drop in the prices taking place within a short time. So delayed exit is more dangerous as compared to delayed entry.
Those who aim to get in at the very bottom in the trend and get out at the top are often unsuccessful. Good trend traders are always happy with only a section of the trend. This trend trading technique is known as walking a mile with the crowd. Trend trading is done with the help of technical indicators and a stop loss strategy consistent with the way the trend has been identified.
by: Ahmad Hassam
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