Trend Trading

Stock market moves only in three directions. Either it moves up, moves down or moves side ways. These trends, respectively called as an Up trend, a Down trend or a Side trend.

The basic criterion for an up trend is that, the prices keep making higher highs and higher lows. Where as a down trend is characterized by lower lows and lower highs. A side trend does not exhibit such a pattern. It keeps moving up and down, with in a range, some times haphazardly. It seems to go no where.

After confirmation, in an up trend or a bull market, stocks are bought to create a buy position. The trade is continued by protecting the profit with a trailing stop loss sell order. Buy position is squared by selling the stock, after confirming trend reversal.

Similarly, in a down trend or a bear market, stocks are first sold to create a sell position. The trade is continued by protecting the profit with a trailing stop loss buy order. Sell position is covered by buying the stock, after confirmation of trend reversal.

Trend following allows to gain the maximum profit, what the trend has in its store. Also it keeps us going against the market trend. After all trend is our friend.

Indicators will help us to stick to the trends. A knowledge of technical analysis, support and resistance, chart patterns and candlestick patterns, will enhance the profitability of stock trading.

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