Trend Trading __ Forex

trading along the direction of the trend

The main reason why people lose money is that traders try to contend with the trend and want to guess the head or bottom of the market. Traders must remember an old market motto: "The trend is your friend" and trade as much as possible along the direction of the trend. The most winning deals are usually those that follow the direction of the trend. If you try to contend with the trend, you are competing with the market's kinetic energy. There is only one reason why market trends exist: market participants----as a whole----that they should be moving in a certain direction. In this case, it is best to pick the big watermelon, standing on the side of the market momentum, do not stand on the other side. Unfortunately, in the course of the trend, greedy psychology often prompts many people to try to guess the head or bottom of the market.

what is the market trend.

The so-called rising trend, refers to the market development process, the wave-like trend of the high point is higher and lower back to the low points did not fall below the previous wave of lows. Conversely, the downward trend refers to the development of the market, the wave-like trend of the low point continued to decline, and rebound highs can not travel through the previous wave of highs. For the ascending trend, the length of the ascending wave exceeds the descending wave. In a clear upward trend, prices are mostly in the vicinity of the highest price in the plate. Conversely, in a clear downward trend, the closing price mostly falls near the lowest prices. The stronger the trend, the closer the closing price to the higher or lower prices.

Please refer to the figure 6-1, S & P Index for a year-long downward trend. Readers can find that the rise of the wave is small, the market is constantly innovative low, and any rebound can not go up the previous wave of highs.

Trends

Trend-Following trading is one of the most widely accepted principles of technical analysis, as it is also the most winning trading method. Unfortunately, the market often lacks a clear trend. However, if there is a clear trend, don't miss it. trend-tracking trading is the easiest way to profit because it represents the path of price development with the least resistance. Therefore, the first task of traders is to think about the direction in which trends follow. Once the trend direction is determined, it must be assumed that the site should ideally be set along the direction of the trend, unless there is sufficient evidence to show the contrary. If you want to judge the long-term trend, then use the Daily line chart, weekly line chart and monthly chart. The longer the trend lasts, the higher its effectiveness. Please refer to Figure 6-1, the trend chart shows an upward trend in the last 3 months, but its strength is obviously not as good as the past month's downward trend. The market must have a lot of power to break out of the main downward trend, otherwise the upward trend of the last 3 months is merely a rebound in the overall downward trend, as is now the case, as recent price gains cannot effectively cross the downward trend line. In addition, remember that the shorter the trend chart, the less meaningful the trends appear. Relative to the daily chart, the 5-minute trend chart is easy to form a trend, and the trend is easily broken.

Trend Line

Even if you do not use a moving average or trend line. It's also easy to see a clear trend from a trend chart, but actually drawing a trendline will definitely help clarify the situation. A trendline is a straight line that represents the direction of price development. As for the trend line drawing method, refer to Figure 6-2, use a straight line to connect the rising trend of the low point, or a straight line to join the downward trend of the highs. The longer the trend line includes, the more points of convergence it touches, and the less likely it is to break through, the more powerful the trendline can play the next time the trend line is tested. Although it takes only 2 points to draw a trendline, the more points you actually connect, the more reliable the trendline is. The tilt angle of the trendline is too steep, it is more unreliable and easy to break through. A trend line with a tilt angle of 20 degrees, whose reliability usually exceeds the tilt angle of 60 degrees. Figure 612 shows a trendline with a smooth tilt, which I think is a very reliable trend line. During the 4-month period, the trend line was tested 4 times and has a supporting function. So, I think this trend line is trustworthy, unless the price falls below the trend line, I will only operate a long position. If the market shows a clear trend, it is definitely not worth the contrarian action. Conversely, you should wait for the market to turn around, and then take the opportunity to establish trend tracking site.

The trend line represents the equilibrium point where the power of the buyer and seller is equal. In other words, the trend line represents the equilibrium position of market supply and demand power. Prices are rising because buying power is greater than selling. Prices fall because the selling strength is greater than buying. In the uptrend (Figure 6-2), the trend line is where the buyer's power begins to overtake the seller. As prices move away from the upward trend line, the willingness of the buyer to continue to hold the site gradually decreases, and the seller's strength is stronger. Soon, the seller's strength will overtake the buyer, leading to the market-turning trend line. The closer the trend line is, the less the seller's strength exceeds the buyer's. When the reentry trend is approaching to the trend line, the trading power is becoming more and more balanced. If the trendline is able to function, buyer Power will overtake the seller, making the price rebound after hitting the trend line.

Trend Channel

After you draw a trendline, you should look at the trend channel next. On the ascent path, move the upward trend line parallel to the left to the top of the price trend, and the line becomes the upper edge of the ascending channel, and the channel contains the whole upward trend. Refer to Figure 6-3, which represents the same graph as figure 6-2, but figure 6-3 shows the upper edge of the Ascent channel.

For the rising channel, whenever the price rises and touches the upper edge of the channel, there is pressure and it is likely to force the price to turn the channel. Traders can use this channel to determine whether the market development is excessive, when the price is approaching the edge of the channel, traders can advance out of long positions. Conversely, when the price is close to the bottom edge of the channel, the trader can prepare to buy. When the trend is close to the edge of the channel, it is best not to buy, because the lower space is too large, and prices break through the upper edge of the channel is less likely. If the price is really up through the upper edge of the channel, it may be possible to confirm the trend of the higher time structure, once the price has continued to go higher trend, you can consider entering buy (this part of the details please refer to the 8th chapter of the discussion of breakthroughs). please pay special attention to: do not easily believe the breakthrough, because prices often only in the disk to make a false breakthrough.

Channels can help determine whether the trend is losing kinetic energy. If the rally fails to reach the upper edge of the ascending channel (for example, C in Fig. 6-4), it means that the upward trend may weaken or come to an end. Of course, this does not mean that you should be empty, because as long as the upward trend is still valid, it should only be done by the Bulls position. In other words, unless there is evidence that the market has entered a downward trend, it should not be emptied. Therefore, in this case, although not actual venting, but to have the preparation of venting, if the price effectively below the upward trend line, you can consider venting. If you intend to continue to do long, you should wait for the market to turn around to the trend line. This is a good entry point, because as long as the price below the trend line, immediately know their own judgment error, you can immediately recognize the loss, the risk is not. Conversely, if the trend line continues to play its due support function, the long position can be profitable.

to observe the longer-term development of the market

Do not forget to observe the longer-term development of the market. In the daily chart of fig. 6-4, you can see that the rally touches the upper pressure line, which is not shown in the 60-minute trend chart. Relative to the short-term trend chart, the daily line chart can provide a new perspective or vision. Judging by figure 6-4, it may be felt that the recent 3-month rally should come to a close and pull back. Although KLAC is currently on the rise, the highs are falling in recent years, and the latest rally may not be able to break the upper pressure and innovate. The current situation is difficult to deal with, as the price trend may be propped up on the upward trend line, but it may also go down the trend line and start a new downward trend. However, now at D, the current trend is an upward trend after all, traders should still be operated by a long position, unless the trend line is indeed below.

Trend Line Breakthrough

Although the trend line is breached, at least to end the original trend tracking site, but this does not mean that the trend is necessarily reversed, or should not be based on the direction of the breakthrough to create new parts. After the original trendline has been breached, it does not necessarily mean that the trend has been reversed, since the trend is likely to be a more gradual development angle, and the disk potential may become a lateral arrangement without a clear direction. In addition, the breakthrough may also be a false breakthrough. In other words, after a break in the trendline, the price is back to its original trend after only one or two linear lines. Whenever the price is approaching a trendline, you must assume that the trendline will function, but still be prepared for "just in case". As to whether the breakthrough is an effective breakthrough or a false breakthrough, traders should be prepared for both situations.

never go after the price .

reverse trend: Pull back and rebound trend the odds of tracking a deal are high, but don't jump in when you decide the direction of the trend, because the market will not move in a single direction. No matter what kind of time structure, there will be bucking the trend of pull back and rebound. These phenomena are due to the excessive extension of the market and profits back vomit. The turnaround trend is also part of the trend, and traders must be prepared to deal with them. Read the previous discussion of the trend chart, whenever the market away from the trend line, will produce the power to return to the trend line. In some cases, the contrarian pull back or rebound trend may be both fast and fierce, if the trader just blindly pay attention to the main trend direction, but away from the trend line of the price approach, it is likely to be seriously injured, even if the trend tracking site is so stone, the control of aging is very important. If you just go into the market because of the clear trend, it is likely that you will have a price-chasing problem. If the entrance price is not ideal, the safety net provided by the trend line may be too far away, in case of wrong judgment, it is difficult to recognize the compensation immediately. In general, stop-loss can be set at a price that is effectively crossing the trend line. The farther away the entry point is from the trendline, the more you may have to pay if the market turns back or crosses the trend line.

Reckless entry I know a stock investor who is always losing money. Why are you always losing money? Because he usually can not wait to enter the entrance, do not want to do further research, also do not want to wait for the stock returns. If, for example, he sees a stock that is high on the plate, he buys it immediately and complains that he is buying the highest price. Almost all of the shares he bought appeared to be 1 in 10 minutes. 5 of dollars in the sharp rise trend. He was worried that he would miss his chance, so he rushed in, but he couldn't figure out why he was losing money. In the worst case, he always compensates when the stock returns to the bottom, because he can no longer bear the loss to continue to expand, then watch the stock price rise and innovate high, and then Chase High buy.

time structure for a person's so-called price-chasing behavior, may not be another person's price, because the price is the normal transaction of the individual time structure to define. Different time structures may be traded on a variety of grounds. Let's say you're a date-reversal person, and using the 5-minute trend chart, in this case, you may find that there are many suitable prices for the whole day, because the 5-minute trend chart shows that these entry points are properly supported, but the longer traders may have to wait for the main pull back to enter the trend. However, the same day the reversal must still understand the main trend of the stock, and follow the direction of the transaction. For example, you see from Figure 6-3 (60-minute trend chart) that you have to deal with multiple parties. Then, by Figure 6-5 (5-minute trend chart), the actual entry point is determined in the case of avoiding the price. In the vicinity of point A in Figure 6-3, you might think it's a little too late to buy, because the stock price has risen so much. However, if you look at the movement of figure 6-5 between 12/04/01 and 12/05/l0 (corresponding to point a of Figure 6-3), you can see some fairly secure entry points. However, once the market developed to point B (corresponding to the 60-minute trend chart of the channel line and the daily line chart of the pressure lines), obviously is not suitable to buy, because the possibility of a high stock price return. This is a fairly typical example of how to use multiple time structures to improve odds. In principle, you want to look for support and pressure at a higher time structure, and then find the actual entry point in a shorter time frame.

don't compete with the market

Many traders often try to counter the trend by thinking that the current trend should be reversed. It turns out. The consequences are usually painful. They either want to catch a short line of contrarian pull back or rebound trend, or want to predict the market head or bottom. These parts are contrary to longer-term trends, of course, the odds are not high.

Let me talk about some personal experience. One day, I decided to trade with the empty side because the market was very weak. At first, I built a short position and did make a little money. However, soon after, I saw the market seems to have a lot of rebound signs. I think "I can do a short backhand, take the opportunity to make a few profits, and then immediately restore the shorts." After the establishment of long positions, the rebound trend did not occur as expected. As a result, I actually hold a long position in the original judgment of the short market. There was no immediate recognition because I was still waiting for the expected rebound to reduce the losses. Not only that, I think "since the rebound will appear, you may want to overweight long parts." As a result, the losses are getting worse. Lesson: It is not worth competing with trends because the risk and reward structures of these parts are not ideal, preferably in the direction of major trends. For the contrarian position, in case of wrong judgment, major trends can cause serious harm. Those who want to capture the rebound or pull back, the skill must be very agile, and have a steel-like will, willing to timely recognition of compensation. in short, in the contrarian market, I think it is best to remain empty-handed, do not try to earn "extra money."

The price will never be too high or too low I remember some of the experiences of the 1998. That summer, goods appeared at a low price for decades. When pigs and grains were at their lowest price for 30 years, I went in and bought them because I thought the price would never fall again. As a result, I saw the lowest price in 40 years. I also try to catch the lowest price of crude oil, buy at 17 dollars, then 16 dollars, then 15 dollars, 13 dollars, 12 dollars, finally give up. The 2000 stock market is another example. When stocks fell from 200 dollars to 100 dollars, everyone thought it was cheap enough. When the share price falls to 50 dollars, they are overweight. At a price of 20 dollars, they think: wow. It's too cheap. By the 5 dollar, they took a final gamble, thinking the whole sell-off was too much. A year later, the price of many of these stocks is well below 5 dollars, and the rebound is hopeless. Lesson: Never assume that prices are too high or too low, and that they cannot continue to rise or fall. When the trend is to be developed, it is entirely up to the market, not just because you think it is too expensive or too cheap, the trend is reversed. In short, the trader should pay attention to the objective price behavior, not subjective opinion.

Trend Tracking Indicators

Because markets only show clear trends over certain periods of time, traders want to use some kind of tool to determine whether there is a clear trend in the market to fully utilize the trend-following approach. There are several trend-following indicators to judge the trend development and its strength. In the next section of this chapter, we are going to discuss some of the most important trend-tracking indicators and trading strategies.

KISS I am a faithful believer in kiss. KISS is the abbreviation for keep IT simple, stupid (keep pure, fool). In my opinion, overly complex indicators or trading systems can only be troublesome and not of much practical significance. Some of the best systems have a very simple structure, and some of the most outstanding traders use only the simplest technical indicators. On transaction matters, the indicators I use most often include: Trend line, channel, stochastic index, moving average, moving average convergent divergence index, relative strength index, average trend index, turnover rate, price volatility and T.S. Eliot wave analysis. For other traders, there may be plenty of "good" indicators. However, these indicators are my preferred trading tools, but these indicators are not every trader is "not to be missed" the ultimate indicator. Many different metrics just tell you the same thing in different ways, because I like to keep it simple. So only a few indicators are used.