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Technical Analysis
Trend
Trading
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Testimonials
Great
site Kenny.
Technical
Analysis written in a straightforward way so that everyone understands.
There's
only a small few who get it consistantly correct and you are certainly
in
that group.
Chris
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Thanks
for putting this all together and sharing! BHW
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Awesome
Stuff! Kenny has shown time and time again the ability to show us direction in
these markets. Khalsa
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Kenny, I appreciate your insight and analysis. You make sense of what I can rarely see.
Thanks for sharing. Gene
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Took a gold short at 1240
just closed at 1203 :-)))))))))))))))))) ........ top call!! Gekko |
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Trend
Trading - Trend Reversals
Technical
Analysis of Stock Trends
Trend
Trading - Trend Reversals
The
trickiest part of trend trading - trend
reversals a CIT
( change in trend), or is it? We don't
think so as the exit process is just a follow on from the
whole logic behind
the theory of our trend trading strategy.
The most
important thing is not to get caught up in the fear and greed
cycle that drives the markets. Our trend line trading strategy is based
on logic and knowing when to exit the trade is an essential part of
that. There are no emotions or guess work involved in this, we simply
let the market tell us what to do.
Change
in Trend (CIT)
We described
in part 1 of this trend trading tutorial
how trend traders do not
attempt to call tops and bottoms. They enter
trades on breakouts, and only exit again once the trend has
broken down again in a change in trend (CIT).
We also
described how it does mean that part of the move is missed at
both ends, but this is
more that made up for by the high success rate of these type of trades.
By waiting for the breaks and letting the market tell us what to do,
losing trades are kept at a minimum. No system will ever give 100%
success of course, it is all about odds and probabilities.
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Trailing
Stops
The highest
level of risk is incurred by the trader right int the initial phase of
the campaign at B1, first trade entered, at B2 the risk
levels are tightened right up by raising stops to S2 for
both trades, thereafter the strategy became risk free as there should
already be enough profit in the trade from the first entry to
counteract any potential loss
on the second entry.
Raising stop levels as we describe is called a trailing stops
strategy and is
core to the success of our trend trading strategy. If we did
not raise stops in this way and the market turned against us, we would
then end up losing at a much faster rate. If you take a look
at the chart below to see what happened next, you will see very clearly
what can happen and why we absolutely must
trail stops as we describe.
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The
Cycle Completes
This chart is quite busy
but it gives a good overview of the complete cycle we have been
following. It is worth
remembering at this point that each of the additions to this Trend
Trading tutorial have all been published here in real time. This was
not an example specially selected from a library of historical charts
just
to fit in. Just as with any other trade, we had no way of knowing in
advance how it would resolve.
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Trend
Reversals
Trend
reversals can be swift and once the
trend has reversed back through our trailing stop a trend trader can
then consider whether to enter a new trade in the opposite direction.
The chart above shows where the next option to enter short and where
the stop was.
Due to the speed of of the recovery of this particular move, there was
very little opportunity for traders to enter a second trade as part of
a trend trading strategy in this case.
Even with the fast recovery, using our trend line trading strategy in trend reversals could
still have banked a very quick 50 points or so for that single trade
entry at Red B1.
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