I’ve invested time and money testing different trading strategies…and believe me, you could spend a lifetime and still not run through them all!
However, I started to pick up on common themes after studying the traits of the best traders.
One strategy that I was drawn to, and still am to this day is trend trading.
It’s when you go with the flow. In other words, if a stock or ETF is trading higher, instead of fighting it, I want to join in and try to ride the wave up.
Trading with trends is like swimming with the ocean current. It’s not just easier…it’s more predictable.
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It took me a while to wrap my mind around the intricacies of trend trading.
I always seemed to identify them after the fact… I’d enter trades at the late stages of the trend and never seem to make enough to justify the risk I was taking.
Man was that frustrating.
However, that was then, and this is now.
The ‘T’ in my TPS System stands for trend.
Trends became the pillar of my work. My trade journal pointed to its success. Not only did I win more with the strategy, but the profits became sizeable.
Once I refined my strategy…things got really exciting.
I took this chart last week…
…and turned it into profits like this…
…it worked for others too…
Now it’s your turn. But before you start firing off-trend trades, allow me to walk you through the mechanics and the key components to trend trading, so you too can slay trades, like TGT.
Table of Contents
Trends within trends
You’ve probably heard people talk about trading different time frames. To spot the best trends, you need to use multiple views.
Looking at a one-time frame is like a horse with blinders…you only see what’s in front of you. Different time frames get different perspectives. They allow you to see not just wear prices but where it has been.
Take a look at this 5-minute chart below.
We can see a clear downtrend in the stock. Price starts at the top left and moves to the bottom right as time goes on.
Now let me zoom out to the hourly chart.
The larger timeframe shows an uptrend.
Trend trading works best when multiple timeframes agree with one another. The alignment of a 5-minute trend with a 60-minute trend increases the odds your trade will work.
But don’t go crazy here. If you are trading a 5-minute chart, you don’t need to look at the monthly trend. They are too far apart to influence one another.
Always move to higher time frames when you want to confirm a trend. It’s best to move up 2-3 levels. If you’re at the 5-minute chart, look at the 15-minute and 60-minute chart. Looking at the 60-minute chart? Compare it to the 180-minute and daily charts.
Drawing trends the easy way
People love to overcomplicate things. New traders often overthink how to draw trends.
I’m going to give you some very simple guidelines to spot them. You should look at all of them to see which one resonates with you.
Method 1: Look at price relative to a moving average. Traders will use exponential or simple 20-period moving averages or less to identify short-term trends.
The SPY is trading back up to the 13-period and 30-period moving averages. With price below both these levels, the trend would be bearish in both the short and medium-term.
Traders like to use the 200-period moving average to analyze long-term trends.
Fun fact: Traders call the 50-period moving average crossing below the 200-period moving average the ‘Death Cross.’
Method 2: Look at recent highs and recent lows.
A series of higher highs and higher lows tend to indicate an uptrend. Look at the boxed areas in the chart below.
The highlighted period shows a clear uptrend as price bounced off higher levels and made new highs.
On the other end, a series of lower highs and lower lows indicates a downtrend. I’ve highlighted a different area on the same chart that shows a downtrend.
Method 3: Go with your first instinct
Don’t think this is a cop-out. Traders overthink things.
When you look at a chart, what’s the first thing you see? Just say it out loud. When you look at the chart and nothing jumps out…there isn’t a trend.
Fun Fact: Not every chart has a trend.
So many ‘expert’ traders would have you analyze a chart to death looking for a trend. There are thousands of stocks to trade.
Why on earth would you bother trading a ‘maybe’ trend when you can find an obvious one?
Take a look at this chart. Can you identify the trend that goes from the left side of the chart to the right?
Neither can I. This chart of the IWM represents complete sideways movement. The chart may work great for range traders. But it’s not my cup of tea.
Turning trends into profits
I always recommend practicing with charts before trading them. Even if you’re familiar with these methods…take 30 minutes to just practice.
Use a trade journal to log your trades. Mine helped me immensely over the years. The act of writing down trades focused me on the most profitable trends.
Practice with a demo account first. There’s nothing wrong with taking a couple of days to refine your skills. Once you’re ready, you can move to a real money account.
Learn with others just like you
We’re constantly going over trades in the Weekly Money Multiplier Program. They are my go-to move for trading. Our group of members includes new traders to ones with decades of experience. Everyone is welcome.
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