The Black Art Of Trend Trading

Trend trading is about holding your positions for a long time, perhaps even for several months. To trend trade, you need to hold your position while the stock reacts against the main trend.

Now no one is going to mail you an invitation to join the party when the stock takes off. When a trend first pops its head up above the wall, few people pay attention. Professional traders constantly monitor and screen their markets looking for breakouts and positive divergences.

Markets at extreme lows or highs only then attract journalists and end up in the news.

A big difference between the pros and the amateurs is that the pros always screen and track their markets while the amateurs only "wake up" to a stock after it hits the news. By that time, the party train has already left the station.

A new breakout is easy to recognize but hard to trade and even harder to hold. As a trend speeds up, the more people on the sidelines hope for a pullback so that they can enter. The stronger the trend, the less likely it is to attract bargain hunters. It takes a lot of patience and confidence to hold a position in a trend. This is one of the reasons women tend to trend trade better than men, they are more likely to be patient.

Your goal as a trend trader is to position yourself in the direction of the market tide and use the smaller waves that go against that tide to add to your initial position.

If you are a beginner, learn to trend trade a single small position. Hold some of your money back and add to your position on pullbacks.

Once you see a new trend, get in! New trends, popping out of trading ranges, are very fast, with few or no pullbacks. If you think you have identified a new trend, jump aboard. You can always reduce your risk by trading a smaller size, but do not wait for a deep pullback. Those pullbacks or retracements will come later at which time you can add to your position. Jumping aboard a new trend feels risky and counterintuitive. As the great George Soros said, “Buy first, investigate later.”

Place your initial stop just under the breakout level where the new trend busted out of the trading range. If your profit thesis was correct, that this is a new trend, the stock should not fall back into the trading range.

Wait for a retracement. If the breakout of the trading range holds, the stock will take the next leg up. Move your stop up just below the retracement low.

Stay with the trend until your trailing stop is broke. Amateurs often sell out of trends much too early because they try and pick the end of a trend—a nearly impossible task. As Peter Lynch said, "Trying to catch a bottom is like trying to catch a falling knife—you invariably grab it in the wrong spot."

I hope this article helps you make a lot of money. Leave any comments you might have below. Thank you and happy improved trading.

Lance Jepsen
President, GuerillaStockTrading.com
Your Trading Coach
(because everyone, even Tiger Woods, needs a coach)

Trend trading is about holding your positions for a long time, perhaps even for several months. To trend trade, you need to hold your position while the stock reacts against the main trend. Now no one is going to mail you an invitation to join the party when the stock takes off. When a trend first pops its head up above the wall, few people pay attention. Professional traders constantly monitor and screen their markets looking for breakouts and positive divergences. Markets at extreme lows or highs only then attract journalists and end up in the news. A big difference between the pros and the amateurs is that the pros always screen and track their markets while the amateurs only "wake up" to a stock after it hits the news. By that time, the party train has already left the station. A new breakout is easy to recognize but hard to trade and even harder to hold. As a trend speeds up, the more people on the sidelines hope for a pullback so that they can enter. The stronger the trend, the less likely it is to attract bargain hunters. It takes a lot of patience and confidence to hold a position in a trend. This is one of the reasons women tend to trend trade better than men, they are more likely to be patient. Your goal as a trend trader is to position yourself in the direction of the market tide and use the smaller waves that go against that tide to add to your initial position. If you are a beginner, learn to trend trade a single small position. Hold some of your money back and add to your position on pullbacks.

Once you see a new trend, get in! New trends, popping out of trading ranges, are very fast, with few or no pullbacks. If you think you have identified a new trend, jump aboard. You can always reduce your risk by trading a smaller size, but do not wait for a deep pullback. Those pullbacks or retracements will come later at which time you can add to your position. Jumping aboard a new trend feels risky and counterintuitive. As the great George Soros said, “Buy first, investigate later.” Place your initial stop just under the breakout level where the new trend busted out of the trading range. If your profit thesis was correct, that this is a new trend, the stock should not fall back into the trading range. Wait for a retracement. If the breakout of the trading range holds, the stock will take the next leg up. Move your stop up just below the retracement low. Stay with the trend until your trailing stop is broke. Amateurs often sell out of trends much too early because they try and pick the end of a trend—a nearly impossible task. As Peter Lynch said, "Trying to catch a bottom is like trying to catch a falling knife—you invariably grab it in the wrong spot."

I hope this article helps you make a lot of money. Leave any comments you might have below. Thank you and happy improved trading. Lance Jepsen
President, GuerillaStockTrading.com
Your Trading Coach
(because everyone, even Tiger Woods, needs a coach)