Thursday, April 14, 2011

Trend trading

Trend days are easy to trade and you should make the best of it. Practically any with-trend setup will work and any style of trading is likely to work. Any trending indicator is also likely to work. On the other hand, counter-trend setups and oscillators are likely to give limited profit.

When the market opened well beyond the range of the previous day, there was a good chance this would be a trend day. The first reversal (b5) was a great place to get in. Buying the low of the first bear bar (b9) is a limit trading style that's usable in a strong trend and worked very well.

So did scaling in after every two point pullback through the pullbacks. So did buying two legged pullbacks on b28 and b55. Breakout tests worked well (b64) as did buying the ema and two points below the ema.

So did buying the first reversal and/or pullback and holding it till EOD.

The point is, you need to be very very bad to lose money on a day like this. When you do get a day like this, do not waste it, take every with-trend trade.

The most important question however, is when do you know its a trend day? Technically, a trend exists the moment you have a higher high and higher low. So by b14 we are pretty sure we are in a strong trend. This still leaves quite a few trades till the end of the day to make some profitable trades.

Anyone who is aware of price action trading realizes however, that the moment there is a large gap, its probably a trend day and the first reversal or pullback is a high probability entry and is worth taking.

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