Trend Trading – 3 Things You Need to Know About Trading Trends Pt3
In this segment of the trend trading series I’m going to go over some final thoughts and the three key points that will help you manage trending stocks and trend consolidations. In part one I explained the popularity and importance of trend trading. Part two covered the top three ways to confirm a healthy trend. Now it’s time to tie it all together and make trading trends much easier and more profitable.
1. Volatile, “Whippy” Price Action Equals Indecision
The first important point is that volatile whippy prices translate into indecision between buyers and sellers. Psychologically what’s happening is traders don’t know where the price is going to go, so they’re continually buy and sell and prices are all over the map (or chart). Bottom line, choppy prices basically means greed and fear is in control.
When price takes off, traders buy because of greed. They want to get in at a good price, and when as it turns around, immediately their greed turns to fear and they sell and wait until the next round of greed occurs. Emotions are constantly changing from greed to fear and traders really don’t know what they want to do, which leads to the second important point.
2. Avoid Prices Patterns without Clean Looking Charts
You want to avoid choppy price patterns. You want to look for the clean charts. Why would you want to look at a chart with a whippy pattern that’s all over the place when you really don’t know which way it’s going to go? Technical analysis can have predictive patterns that you can follow, but in a choppy pattern, it really minimizes the predictive power of any patterns that you see on a chart. You really have no idea what’s happening on a choppy chart. You want to look for those clean, quiet patterns that are just steady in price.
These are the charts that are going to give you a really good entry. Stick with the easy, clean patterns. It’s far easier than trying to bang you head against the wall and trying to trade whippy indecisive price action.
3. Hold Your Stop Loss and Ride out the Storm
The last key point I want to cover is if you do own a stock and it does turn choppy and whippy, you want to hold your stop loss and try to ride out that storm. Try and hold on and maybe the trend will continue, but usually, when price starts to do that, it means that trend is weakening. With each choppy price move, the bears are gaining control (in an uptrend) and eventually, they’re eventually going to take price downward and create a new downtrend.
Don’t worry if you are stopped out. You want to move on to the next trade and look for the next clean chart that is an easy tradable pattern.
This is why money management is so important. You can’t control the movement of stock prices, unless you’re a multi-billionaire but that is for another article. The only thing you can really control is your money management plan and your own trading psychology and discipline. Master these areas and you’ll be ahead of 90% of traders.