Watch our video on why the trend is your friend when trading and read below why trend trading is better than calling tops and bottoms.
The Trend Is Your Friend
- Why is the trend your friend? The more you learn to trade, the more you realize how helpful the trends are. It provides to many necessary details. For example, direction as well as support and resistance. Also where the momentum of the stock is. Going against the momentum could cause you to lose more trades. Trading with the trend, could help you win more trades.
The trend is your friend. That's a statement you've probably heard a million times if you're a trader. When you begin your stock market training, the importance of the trend should be noted. Are you trying to call tops and bottoms and having trouble? How's that working out for you? Maybe its time you go with the flow and trade with the trend...read on and understand why Is say this.
You need to be able to spot the trend as well as know how to draw trend lines. You can open a practice account in Thinkorswim with TD Ameritrade to practice the correct why to draw trend lines. Yes you'll need practice at first. Trading isn't easy, but spotting the trend IS.
1. Why: The Trend Is Your Friend
The trend is your friend. Why? Have you ever tried to trade with no clear trend in place? It isn't fun or necessarily easy. However, there are strategies in options trading such as the iron condor that are neutral strategies.
Although, most strategies require a trend in order to be successful. However, day trading can be done without a strong trend in place. Although, those stocks can struggle as a result of no strong trend.
Swing trading without a trend in place is pretty difficult. Hence why the trend is your friend. Since swing trading means holding a stock at least overnight up to a couple of weeks, you need a strong direction.
The back and forth of a trendless market or stock will take your profits in a heartbeat. The trend is your friend because it goes a long way in protecting your trades.
Many times traders will end up swing trading to get around the PDT rule. This rule limits the number of day trades you can make if you have an account under $25,000. Hence the helpfulness of swing trading.
You can hold overnight (or longer) and not have it count against your day trade limit. As a result, you can use your 4 day trades elsewhere.
2. Support and Resistance
The trend is your friend can provide pretty important support and resistance levels. One of the most important thing you can learn as a new trader is support and resistance.
Many times, new traders haven't taken the time to learn support and resistance before they begin trading. As a result, many times they buy at resistance of trades that were running only to have it fall and end up with a loss.
Support and resistance can be found using the real bodies and wicks of candlesticks, moving average lines as well as trend lines. That's where support and resistance comes into play with the trend is your friend method.
Not only are there the straight lines that make up those crucial levels but angular lines as well. If the stock is testing the angular support of an uptrend, that's critical to how you'd go about a trade.
If it holds, you can get a good entry. However, if you buy without confirming the angular support holding, you can end up taking a loss. Support and resistance levels are so important ever trader no matter how seasoned, pays attention to them.
If the seasoned traders believe the trend is your friend, then all new traders should realize the importance of this as well.
3. Direction Matters
Have you tried trading without a strong trend or direction in place? It's not easy. In fact, trading anything without a trend tends to be sloppy.
If you're apart of the Bullish Bears community and take advantage of the live streams each morning, you're well aware of how hard it is to trade without a trend in place.
The trend is your friend because direction matters. Whether it's a strong uptrend or strong downtrend, you know how to trade them. However, when a stock or the market can't seem to choose a direction, it's nearly impossible to swing trade and day trading is much more difficult.
When the market or your stocks you're looking at follow a trend, you can ride that up or down. That doesn't mean there won't be days that a stock or the market pulls back. It just means those losses typically are small and over quick. Stock market trading needs direction to get the best profit.
Only options trading has strategies with can make money in neutral markets. As a result, if you don't trade options, then the trend is your friend. Many times the trend is still your friend even trading options.
Final Thoughts on the Trend Is Your Friend
The trend is your friend is because direction matters in the market. If you take a look at the past year, any time the market couldn't choose a direction, trading was difficult. Make sure you can draw out your trend lines correctly as this will be a great help to you when finding the trend.