You always want to trade in the direction of the main trend. As the old adage goes “The trend is your friend.” And it’s true. Why?
You want to stack the odds.
You want as many odds in your favor as you can get.
If your active on the long side, you want to buy during an uptrend.
If your active on the short side, you want to buy during a downtrend.
It’s as simple as that.
How do you identify a trend?
It shouldn’t take you more than a few seconds to identify the direction of a trend.
A trend is generally defined as the overall direction of data points in a time series.
Let’s look at an uptrend.
First, the chart goes from bottom left to top right.
Second, there is a series of higher highs and higher lows.
Of course, the reverse works too for downtrends.
These are the basics.
Now you can use trendlines, moving averages, or other types of indicators to tell you that.
Now what’s important is that there are different timeframes.
You could be in a short-term downtrend, but in a long-term uptrend.
So, choose the timeframe that suits your strategy.
But the odds are highest when all timeframes are aligned: Short-term, mid-term, and long-term.
Only a small percentage of the time is the market in a trend. Very often it’s just going sideways. These are the most dangerous time for active investors. When there’s no trend, the market is typically volatile and will move in both directions viciously.
Whenever you think the market is about to go into your favor, it hits a wall and turns around.
These moves can be exploited as well, if your timeframes are shorter.
But generally the big money is made during strong uptrends.
Why?
Two reasons:
First, objects in motion tend to stay in motion.
Second, there is typically little or no overhead supply.
Hence, most people holding it sit on a profit.
Not all trends are equal. The steeper the trend the stronger. But it is also more vulnerable for larger pullbacks.
The problem with steep trends is that they often turn into climax tops.
The euphoria feeds on itself. People are making money. Dips are get bought. It seems that everyone is a genius. Now of course, other people start noticing that and want to join in. At the same time short sellers see this crazy action and bet against that. But betting agains the main trend is a bad idea. Usually they’re too early. They get squeezed and the stock goes even higher.
What happens next is that there a few days or sometimes even weeks with big price and huge volume.
This, of course, is not sustainable. Everyone who wanted to buy is in. Few buyers are left to drive the stock or the market higher. So, even just a few people starting to take profits and sell shares can lead to a big correction. It’s starts with a few, then more people sell, and eventually a lot stops are triggered, cascading into a big sell-off.
Make sure you don't get caught chasing the very end of the move. That’s where the risk-to-reward flips against you. It might feel like you're missing out, but jumping in late can leave you holding the bag. Instead, stay patient.
Bonus Tip: You can check the current market trend here.
You always want to trade in the direction of the main trend. As the old adage goes “The trend is your friend.” And it’s true. Why?
You want to stack the odds.
You want as many odds in your favor as you can get.
If your active on the long side, you want to buy during an uptrend.
If your active on the short side, you want to buy during a downtrend.
It’s as simple as that.
How do you identify a trend?
It shouldn’t take you more than a few seconds to identify the direction of a trend.
A trend is generally defined as the overall direction of data points in a time series.
Let’s look at an uptrend.
First, the chart goes from bottom left to top right.
Second, there is a series of higher highs and higher lows.
Of course, the reverse works too for downtrends.
These are the basics.
Now you can use trendlines, moving averages, or other types of indicators to tell you that.
Now what’s important is that there are different timeframes.
You could be in a short-term downtrend, but in a long-term uptrend.
So, choose the timeframe that suits your strategy.
But the odds are highest when all timeframes are aligned: Short-term, mid-term, and long-term.
Only a small percentage of the time is the market in a trend. Very often it’s just going sideways. These are the most dangerous time for active investors. When there’s no trend, the market is typically volatile and will move in both directions viciously.
Whenever you think the market is about to go into your favor, it hits a wall and turns around.
These moves can be exploited as well, if your timeframes are shorter.
But generally the big money is made during strong uptrends.
Why?
Two reasons:
First, objects in motion tend to stay in motion.
Second, there is typically little or no overhead supply.
Hence, most people holding it sit on a profit.
Not all trends are equal. The steeper the trend the stronger. But it is also more vulnerable for larger pullbacks.
The problem with steep trends is that they often turn into climax tops.
The euphoria feeds on itself. People are making money. Dips are get bought. It seems that everyone is a genius. Now of course, other people start noticing that and want to join in. At the same time short sellers see this crazy action and bet against that. But betting agains the main trend is a bad idea. Usually they’re too early. They get squeezed and the stock goes even higher.
What happens next is that there a few days or sometimes even weeks with big price and huge volume.
This, of course, is not sustainable. Everyone who wanted to buy is in. Few buyers are left to drive the stock or the market higher. So, even just a few people starting to take profits and sell shares can lead to a big correction. It’s starts with a few, then more people sell, and eventually a lot stops are triggered, cascading into a big sell-off.
Make sure you don't get caught chasing the very end of the move. That’s where the risk-to-reward flips against you. It might feel like you're missing out, but jumping in late can leave you holding the bag. Instead, stay patient.
Bonus Tip: You can check the current market trend here.
You always want to trade in the direction of the main trend. As the old adage goes “The trend is your friend.” And it’s true. Why?
You want to stack the odds.
You want as many odds in your favor as you can get.
If your active on the long side, you want to buy during an uptrend.
If your active on the short side, you want to buy during a downtrend.
It’s as simple as that.
How do you identify a trend?
It shouldn’t take you more than a few seconds to identify the direction of a trend.
A trend is generally defined as the overall direction of data points in a time series.
Let’s look at an uptrend.
First, the chart goes from bottom left to top right.
Second, there is a series of higher highs and higher lows.
Of course, the reverse works too for downtrends.
These are the basics.
Now you can use trendlines, moving averages, or other types of indicators to tell you that.
Now what’s important is that there are different timeframes.
You could be in a short-term downtrend, but in a long-term uptrend.
So, choose the timeframe that suits your strategy.
But the odds are highest when all timeframes are aligned: Short-term, mid-term, and long-term.
Only a small percentage of the time is the market in a trend. Very often it’s just going sideways. These are the most dangerous time for active investors. When there’s no trend, the market is typically volatile and will move in both directions viciously.
Whenever you think the market is about to go into your favor, it hits a wall and turns around.
These moves can be exploited as well, if your timeframes are shorter.
But generally the big money is made during strong uptrends.
Why?
Two reasons:
First, objects in motion tend to stay in motion.
Second, there is typically little or no overhead supply.
Hence, most people holding it sit on a profit.
Not all trends are equal. The steeper the trend the stronger. But it is also more vulnerable for larger pullbacks.
The problem with steep trends is that they often turn into climax tops.
The euphoria feeds on itself. People are making money. Dips are get bought. It seems that everyone is a genius. Now of course, other people start noticing that and want to join in. At the same time short sellers see this crazy action and bet against that. But betting agains the main trend is a bad idea. Usually they’re too early. They get squeezed and the stock goes even higher.
What happens next is that there a few days or sometimes even weeks with big price and huge volume.
This, of course, is not sustainable. Everyone who wanted to buy is in. Few buyers are left to drive the stock or the market higher. So, even just a few people starting to take profits and sell shares can lead to a big correction. It’s starts with a few, then more people sell, and eventually a lot stops are triggered, cascading into a big sell-off.
Make sure you don't get caught chasing the very end of the move. That’s where the risk-to-reward flips against you. It might feel like you're missing out, but jumping in late can leave you holding the bag. Instead, stay patient.
Bonus Tip: You can check the current market trend here.
