One of the most powerful methods in day trading is identifying and trading with the underlying trend. The underlying trend represents the gravitational pull of the market. The trend is the true force behind price action and sector momentum. It carries everything in its path ith it.
Technology has made identifying trends easier than ever. The tools necessary for spotting trentds are readily available in software packages today. The most effective way to spot a trend is to have a simple check and balance system.
Many who are interested in trading have heard the saying,”The trend is your friend.” Why then do many novices and professional traders alike disregard the concept of trading with the trend? This is because many are not sure how to define a trend for their own trading objectives. Even when traders have developed a clear cut-cut definition of a trend, they often disregard their own rules because of their desire to catch the bottom or top of a move.
The middle part of the trend, or the “meat of the move” is the part of the move that you should focus on catching and trading. The beginning or end of a move is inconsequential. You have not missed much when you miss the bottom or top of a trend.
As a trend gets close to completion, it is the most ferocious, and it battles for every last breath. This occurs becuase as tends mature, they usually attract more attention and more volume. When a hot stock or sector’s popularity is the greatest, many buyers already own the stock. When optimistic bulls or pessimistic bears push a trend to its very limits, heavy volume is often associated with the last desperate assault. This is called volume capitulation, which is a surrendering of the force moving it becuase they used up all of their buying or selling power. The reason the trend capitulated is that the supply-demand equilibrium shifted. If you are fighting for your life, you get a burst of adrenaline that allows you to push your strength to its limit. When the adrenaline wears off, you are weaker than ever. Volume capitulation. In effect, the top or bottom of a move is only a small part of the entire move. There is a great deal of profit to be made when you climb on board to catch the middle of the trend.
Filed under: Online Day Trading, Online Stock Trading, Online Trading, Rules for Stock Trading, Tips for Stock Trading, day trading, day trading stocks online, intraday trading, investing, stock trading, stock trading education, supply demand, trading stocks | Tagged: Charts, demand, Online, stocks, supply, Trading, Trends
