Trading With and against the Trend

12 Sep Posted by in Fundamental Analysis | Comments Off on Trading With and against the Trend
Trading With and against the Trend


Whenever you put on a trade, do you ever wonder if you are going with the trend or against it? Or do you simply follow mechanical signals generated by a bunch of indicators and oscillators? Does it make any difference?

Leaning heavily on lagging indicators’ signals without understanding which way the market is leaning is trading in the dark. The astute trader knows which direction the market is showing bias. Proper chart reading shines a bright light on this important aspect of trading.

There is an old saying in trading: trade with the trend because the trend is your friend. I have an updated version: trade with a strong trend, because it is a better friend.

If you are a trend follower, you place a trade when you see a trend developing. However, in order to stay in the trade, you need to see that the trend still has enough energy to continue. Otherwise, you may give back a large portion of your open profit. In other words, be careful when the trend is waning and coming to an end.

If you are a momentum trader, you need to evaluate trend strength properly to get onboard a very strong trend. A good example is the breakout trader who gets in with the trend that needs to be very strong at the point of entry. Otherwise, he will get caught in a false breakout.

If you like to fade the market, that is, pick highs and lows, you need a trend that is slowing down and losing momentum. Applying powerful tools such as Fibonacci ratios can provide a mathematical price to enter. However, you’d still need to read the chart properly for weakening trend strength. Otherwise, price action may blow through one set of Fibonacci cluster to make the turn at the next cluster.

Some of the price structures that I use to determine trend strength are very simple and easy to apply. They are part of a methodology I call SuperStructureTrading.
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