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Stocks trends" The trend is your friend " I'm sure you've heard this before about stocks trends and I also assume you agree with it but how much do you really know about trends anyways? What are stocks trends? The price chart of a security may appear like a random distribution, but this is not so. About 30% of the time a security will be in a definite trend. The rest of the time prices will trade more or less in a side ways range. Our job is to recognize trends early, as they emerge from non-trends or as reversals of prior trends. We then buy/sell our security early in these new stocks trends and exit, the trade profitably when the trend ends. This identification of trend, its beginning and end, is the most important thing we have to do. This is how great fortunes are made. Stocks Trends Trend can be your best friend, or your worst enemy! Like the title says: the trend is your friend. But what does it mean? Well, a trade is your friend if when you trade in the same direction as the trend. The momentum of stocks trends can help drive price movement further in your favor. Alternatively, when trading on the opposite side of a trend, it can just as easily propel the price action against you. In this case, the trend is your worst enemy! Therefore, it is preferable to trade with a trend rather than against it. Trend is the easiest and the most difficult thing to understand. The difficulty arises because of the time factor. Whenever we talk of trend it has to be related to the context of time. An intraday (relates to action on that particular) price chart may show a significant trend, which is contrary to a trend recognizable on a daily price chart, which may be contrary to a trend on a weekly chart. Success depends on recognizing and trading the appropriate stocks trends. Successful investing depends on recognizing the short, medium or long-term trend and their correction (Rallies and Dips) inside the larger trend. We will usually be trading when at least the short term and intermediate term trends are in the same direction. The ideal will be when all three trends are in unison, but this is not a prerequisite, as intermediate trends can be substantial in both time and price. It would be too exclusive a trading strategy to ignore these opportunities and only trade when all three trends are in harmony. A simple definition of stocks trends is basically the general direction of price movements. An up trend is present when prices make a series of higher highs and higher lows. A downtrend is present when prices make a series of lower highs and lower lows. When prices move without such a discernible series, prices are said to be trading side ways in a range or trend less. Once a trend is discernible then trend lines can be drawn to define the lower limits of an up trend or the upper limits of a downtrend. It is essential that trend lines be drawn correctly. It is the recognition of the trend line and the violation of this trend line that is your key to successful trading and fortune building. Trend psychology Of all the types of books about trading that I’ve read the ones that had the most impact on my success have been psychology books! Human behavior has been of subject I always found fascinating, and not just when it comes to trading… I believe understanding human psychology plays a very important part in making you a successful trader, or not. The reason why the market exaggerates moves and allows us to make money is because people are always anticipating something. They are either anticipating god news or bad news. One way to determine if the market anticipates good or bad news is to tune in to your favorite finance media. It doesn’t matter if it’s CNBC or a local radio show showcasing finance gurus, they all follow the same trends, where ever it started ( usually CNBC leads the band wagon… ) When markets are clearly bullish you need to be very cautious! It’s very logical if you think about it: If everybody is bullish and they are all back in the market there aren’t sufficient numbers of new buyers coming into the market to sustain prices or drive them higher… Anyway, the point is that human psychology drives the market and trends. The other interesting part about psychology is that there are just enough people out there that know about trends and believe in them to make them work! It’s kind of a self-fulfilling prophecy… The buy on rumor-sell on the news trend, earnings runs, the use of moving averages as support and many other trends work because people know about them and believe they work. For example, the 200-day moving average is perceived as a very strong level of support, or resistance. So when the stock’s price falls to its 200-day moving average, people start buying the stock expecting the underlying support. The opposite is true when the price rises to the 200-day moving average… The idea is to stay one step ahead of the market. In the best-case scenario , we can find trends that only a few people have found, since trends historically work when some people , but not everyone, knows about them. Stocks trends tend to stop working once everyone does know about them. Once this happens they anticipate and rush in to play the trend, which leaves no more buyers or sellers to propel the trend forward. If a trend quits working, I do research to determine if there are any variables that might have affected the trend. If I don’t find any and the trend was just a fluke, it raises a caution flag but it doesn’t necessarily mean a trend is no longer valid. So I watch the trend the next time. If it’s a loser again then I don't play it any longer until subsequent tracking confirms whether the failures were just exceptions or confirm the trend is no longer valid with a given stock. It is important you realize that even if a trend doess’t work anymore with a specific stock , it doesn’t mean it will not work with others. When you trade with a trading plan that as you using a specific combinations of indicators to tell you what to do, it is wise to look back a few months and apply your strategy to the past and see if it does respond favorably to your combo. You might have to tweak it a bit or you will find that it doesn’t work at all. Of course the past doesn’t guarantee anything but at least it will give you a heads up if it already adapted to your specific plan… If so just move on and find a stock that does respond favorably to your tactic. Don’t try to develop a new strategy for this stock alone! If you do that you will join the 90% of traders who fail! They just don’t focus and are on a constant quest for the holy grail of trading systems! Just get good at trading using your trading plan and find stocks that "agree with it". Don’t try to find trading plans that fit the individual stocks! At any rate, I track these types of things, trend behavior, the overall market sentiment, market psychology and human nature, and I factor them into MY trading plan . My goal is to find proven stocks trends and to take advantage of them for the added “edge” they provide. Development of stocks trends: There are 3 trends a stock can move in: a) Uptrend b) Sideways trend c) Downward trend a) An uptrend is a series of price advances followed by price declines that don’t violate the prior low (higher highs and higher lows). In an uptrend the prior low serves as support and the last high serves as resistance. The best trade during an uptrend is of course a long trade. At some point after a rise in price the stock will be “tired” and has to “relax” a little to gain strength to make a move again. This is when a sideways trend (consolidation) develops. b) In a sideways trend highs and lows are approximately on the same level. The highs mark resistance and the lows serve as support. After a long sideways trend stocks often reverse the prior direc¬tion and fall in to a downtrend (in case the prior trend was up). C) A downtrend is a series of price declines followed by price advances that don’t violate the prior highs (lower highs and lower lows). The prior high serves as resistance to the upside and the prior low serves as support to the downside. Now let's look at some charts displaying trends:
Trend lines and trend channels: Trend lines and trend channels are a very important part in technical analysis since they define the trend itself and show you important areas of support and resistance. I use them mostly for the longer-term analysis based on daily charts. In an uptrend a line is drawn below the “major” lows of the trend. The uptrending line shows you relevant support. The opposite is done in a downtrend; you draw a line above the “major” highs of the trend.
Trend channels occur in stable trends when you can draw a second (parallel) trend line in addition to the one we talked about before. This time we will also draw a line above the highs of the up trend and vice versa for down stocks trends. By drawing this line we have established a trend channel that not only shows us support, but also shows the most likely range the stock will be trading in, thus us very nice entry points at support (referring to the core swing trading buy setup) and profit targets at resistance.
OK, that's enough for stocks trends. Of course I could go on forever but like I said originally: "I will give you what you need and only what you need to trade/invest succesfully. No fluff here... Now you can move on from stocks trends to the next chapter Daytrading signals. 
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