Re: The Trend
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What is "the trend" and how does one "follow" it? I'm not looking for hand-waving here, I'm looking for testable, quantitative, repeatable measures for finding "the trend" and testable, quantitative, repeatable methods for "following" it.
Any of you trend followers want to start?
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Some hands involved, but its mostly an "eye" thing! [img]/images/graemlins/smile.gif[/img]
I'll start with the basics (excerpted from Charting by Michael "Tiny" Saul)...
The general direction of a stock's price movement over a period of time is called a trend.
If the price is moving up over time, then it is in an uptrend.
If the price is moving down, then it is in a downtrend.
And, if the price is essentially moving sideways, it is said to be in a range, or rangebound.
One of the main principles of price action is that a trend has a much greater likelihood of continuing than reversing.
Although, a directional up- or down-trending market will eventually lead to a rangebound market, and a rangebound market will eventually lead to a directional trending market, you can't always predict the precise timing of the change.
So, the goal is to recognize the current trend and use an applicable trading strategy.
If you are in an uptrend, look to buy the price pullbacks.
If you are in a downtrend, look to sell the rallies.
In a rangebound market, look to buy the low end of the range and sell the high end of the range.
While you can trade either, it's better to trade a directional trending market, since the moves tend to be larger.
Some statistics...
70% of the markets moves occur in only 20% of the time.
The market tends to stay rangebound 80-85% of the time.
The market tends to move directionally 15-20% of the time.
Make sure to use the right charts for the type of trading you are doing, as the short, intermediate, and long term trend outlook may be different. Chart suggestion...
Scalping: 1 minute
Daytrading: 5 minute
Swing Trading: Hourly
Intermediate: Daily
Investing: Weekly
You should also look at the chart one time period up from the chart you base your trading on.
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