Deprecated: mysql_connect(): The mysql extension is deprecated and will be removed in the future: use mysqli or PDO instead in /home/a26f9f83/public_html/articles/includes/config.php on line 159
Trend Trading - Trading Stocks Using Technical Analysis and Swing Trading Strategies > NetSparsh - Viral Content you Love & Share

Trend Trading - Trading Stocks Using Technical Analysis and Swing Trading Strategies

Peter is a professional trader, Paul is not. Peter has a tested, proven, written trading plan that he follows each time he enters a trade, Paul does not. Peter has agreed to meet with Paul to help Paul become a more successful trader.

Paul was early for his first appointment to see Peter a few days later - he was feeling both excited and apprehensive. Peter had told him he would show him how to use technical analysis and swing trading strategies to trade Stock market trends with confidence - but could he really do it?

Did he have the ability to become a successful trader after losing so much money in the market these last two years? Was he just wasting Peter's time?

As he waited, he thought about the look Beth had given him when he had told her about his trading losses...the sense of failure he had experienced as she just walked away. The feeling of utter helplessness he had felt as the enormity of his losses had finally dawned on him. He had been so close to financial freedom, but now that had been taken away from him.

He was just starting to feel sorry for himself again when Peter strode into the foyer of the office building and wished everyone good morning - feeling sorry for himself would have to wait until later.

Peter motioned him to follow him to the elevator. Paul did so and they chatted as the lift took them to Peters 30th floor office. It was smaller than he had imagined, just a receptionists desk in the waiting room and one office with a view of the city.

He expected something grander, but the office was functional, and besides, Peter didn't have a need for any more space as he had only 1 staff member, Kim, his Secretary and receptionist, host, coffee maker and confidant.

The focal point of Peter's office was his trading screen - a triple screen plasma display monitor over 4 foot wide. "Not that's a screen," Paul thought to himself.

Kim brought in coffee and then left them alone. Paul poured them both a cup and took a seat.

Peter gazed out the window towards the city for more than a minute before speaking. "So you want to be a trader?" he finally asked. "Yes, but more than that, I want to be a great trader," Paul answered, "Like you."

"How do you know I am a great trader? And anyway, what is your definition of a great trader?" Peter asked.

"I heard you talking at the diner the other day - you certainly know what you are doing, and the market is up 5 days straight and more than 130 points since you bought the S&P 500 Index, that's 20% in a week!" Paul explained. "I think anyone who can take their profits on the day of a major low like that and then have the ability to turn around and buy...and be dead right, is a great trader."

"That is true, the Index is up a long way. And yes, I did get in at the low, didn't I? So I guess, by your definition, I am a great trader," Peter chuckled to himself.

"How far do you think the market will go up before it has a breather?" Peter asked. "I have no idea," Paul replied. "Neither do I, that's why I have placed my sell orders below the daily lows each day in case it turns around again and I'm ready to go short again," Peter explained.

"It's not so much picking the low that is important or even necessary, it's managing the trade as it progresses that makes the money," Peter added.

"But we'll get to that later, let's have a look at a chart and tell me what you see," Peter said. He opened his charting software and soon they were looking at a monthly chart of the S&P 500 Index. Chart available at Stock Trading Review.com

"This is the last 3 years price history of the S&P 500 - what can you tell me about the direction of the trend?" Peter asked.

"It's been going down," Paul replied. "Correct, and which way have you been trading this market that has been in a clear down trend?" Peter continued. "I haven't been trading it at all, I've just been fully invested, losing money," Paul replied.

"Then you have indeed been trading it, my friend." Peter continued. "By sitting on your hands for the last 2 and a half years while prices continued to fall, you have been fighting the trend. People who fight the trend always lose money.

"Then, you finally sold in a panic, like all the other small traders who finally gave up hope last week. You sold to people like me. The same thing happens every time there is a correction or bear market - the small traders hang on until they can't stand to be in the market any longer, they all sell together in a panic and then the market goes up."

"Tell me, looking at this chart, when did the downtrend start?" Peter asked.

"Well I guess around December, 2000 is where it looked like it started to fall away," Paul replied. "Correct," replied Peter.

"That means that from December 2000, there was no reason to be buying this Index, or buying Stocks that were showing the same chart pattern, and there was every reason to have your Stock portfolio hedged if you didn't sell or have your money in cash."

Paul looked at the chart and of course it was easy to see the trend was down with hindsight.

Before he could say anything, Peter continued. "Of course, hindsight trading is perfect, so how would you have known the best time to get out of the market or hedge your portfolio?" Paul looked at the chart and said, "I guess when the moving averages crossed over."

"Correct," said Peter. "So, for the last 2 and a half years, the trend on the monthly chart was down. "What else does this chart tell you about the market?"

Paul looked at the chart, but he wasn't really sure what Peter wanted to know. "I'm not sure," he finally confessed.

"Take a close look at the reactions within the downtrend. Notice that the largest one only managed to go against the trend for 3 months. In any timeframe, a market or Stock that can only go against the major trend for a few bars like this is in a very strong trend.

"Also, the Index was consistently closing below the short term moving average, and always closed below the longer term moving average - this is not something you want to sit through fully invested, holding on and hoping," Peter continued.

Paul could see now the reason for his huge losses. He had looked at charts before but he had never looked at the big picture. The monthly chart showed the trend clearly - and it had been down. A simple moving average crossover sell signal would have saved his fortune...

"This simple timing system is what I use for my long term portfolio," Peter continued. "I have 70% of the funds I have allocated to the Stock market invested for the long term in leveraged S&P 500 Index Funds. My investment in these funds forms the core of my Stock portfolio.

"I initially entered when I got a buy signal in 1994 and added more funds each month - 50-70% of my net short term trading profits and other income. I kept an eye on the monthly chart and didn't get a sell signal until the end of 2000. I was fully invested in those funds from around 500 points to 1450 points."

Peter then showed Paul a monthly chart going back to 1994. Paul looked at it in disbelief. He was looking at probably the greatest wealth creation trend in history and he had missed most of it because of his short term focus. Chart available at Stock Trading Review.com.

"Remember this Paul," Peter said as they studied the long term chart, "Wealth comes from looking at the big picture. Many people believe that holding for the long term means forever. I prefer to hold things that are rising in value. If the trend turns down, I take my money and wait until the trend turns up again.

"This strategy of timing the market with a simple moving average crossover has made me a fortune while millions of people in this country have lost their life savings.

"Smart investors always invest the majority of their capital for the long term, but have clear guidelines for preserving it if the trend changes. They only trade with a small amount of money that they are prepared to lose.

"Your trading will be more profitable if you know that you have a substantial portfolio invested long term and it is increasing your wealth. By trading your entire account, and not managing it properly, you risked, and finally lost, most of it.

"And even though I bought a small position in Index futures a few days ago, my long term portfolio is still fully invested in Mutual Funds that trade inversely to the Index - in other words, the unit price of those Funds increases if the Index goes down.

"The trend is still down on the monthly chart as you can see, so that's the way I want to be positioned with the majority of my portfolio. I think we have seen the low, but I am not prepared to risk my wealth on it. If the trend changes, then I will change with it. As you can see, I don't have to make decisions very often.

"The market took nearly a year to form a top and start down. It might take a year to form a base if I am right and we are near the low. Patience and emotional control will make you a fortune -fear and greed will destroy your wealth."

Peter let the enormity of the previous rally and subsequent bear market sink in, and then said, OK, "Now we've had a look at the big picture, let's have a look at the weekly trend." Chart available at Stock Trading Review.com.

As they looked at the weekly chart, Peter continued, "We know that the monthly trend is down - this weekly chart shows the most recent leg down that may have brought in the low for this bear market. The remaining 30% of my Stock market allocation is used to trade shorter term trends using both this timeframe and the daily chart.

"Bearing in mind that we are looking for trades with the major trend, we are looking to enter this market as soon as it confirms that the fast move down is indeed under way again after each of the bear market rallies that typically come along every few months. I have drawn a swing chart over the bar chart to highlight the swings of the market as it moved lower.

"Tell me what you see here," Peter asked. "Again I see a down trend - the moving averages are more often than not heading down and the swing chart you have drawn over the bars is making lower tops and bottoms - the trend is definitely down," Paul replied.

"And still you held on, while billions of dollars was wiped off the value of the Stock market all around you!" Peter said. "You knew the market was going down as you are somewhat familiar with charts, why did you not do anything to protect yourself?"

"I was always told that I should hang in for the long term - that the market always came back, and that it had never failed to make a new price high after every bear market. I guess I was too scared to do anything in case I got out right at the bottom. As it turned out, I did that anyway," Paul said.

Peter continued, "Notice on this chart that the rallies were also no more than one or two bars. This indicates a very strong trend - not something anyone should be buying into or holding if they want to protect their wealth.

"There were many people buying the dips as the down trend unfolded. This strategy had worked well in the bull market, but it failed miserably when the bear market came along. Every rally failed, forcing buyers to become sellers as the trend continued down.

"Trading the market requires us to adapt - the market has seasons - if we are out of season with the market, we get crushed.

"The rallies were just traps. Every bear market has them, and every time, traders think they have picked the bottom, only to find that they have not."

Paul looked at the chart and for the first time, with the help of the swing chart overlaid on top of the bars and the moving averages set as they were, he could see how simple it was to determine the trend. Especially the last few weeks - it was certainly a panic.

"Now, let's have a look at the last few weeks to see what we can determine." Chart available at Stock Trading Review.com.

"Again, I have drawn a swing chart over the price bars on this daily chart. Once you understand swing charts, you will be able to draw these lines in your mind and you will not need to draw them on your charts any more," Peter said.

"As you can see, the moving averages are again moving down at a fair clip and the reactions to the down trend are no more than 3 bars. With the Monthly and Weekly trends strongly down, and a daily trend that is showing very weak rallies in this fashion, what else is a trader to do but short sell this market?" Peter asked.

Paul could see it clearly now, the trend was blindingly obvious -why had he not taken any notice before? There had been a fortune for the taking and he had not seen it.

"But how did you know for sure the market would turn on that day?" he asked Peter. "Ah, that is a lesson for another day my young friend. For now, lets make sure you understand trend trading first. Once you know what a trend looks like, you will be in a position to make consistent profits from the market, not before."

With that, their first meeting was over. Peter had some important visitors waiting in the reception area to discuss a Joint Venture in a property development. It was time for Paul to go.

He thanked Peter for his time and left the office. As walked out through the reception area, Peter called out behind him, "When you get home, set up all the Stocks you owned in a watchlist on Incrediblecharts.com, set it to monthly, put some moving averages on them and work out where you should have exited - that is your homework for this week. I will see you next Wednesday at 8.00am. Don't be late..."

Paul arrived home with a renewed sense of purpose.

He did as Peter ordered and as he went through his previous portfolio, he saw that he should have sold every Stock he had owned by January 2001 at the latest. He felt disgusted with himself at having not been able to see this sooner, but he consoled himself that at least now he was on the right track.

He was still apprehensive, but he had a chance to put things right for his family. He was determined to make it as a trader, and with Peter's help, he felt he could indeed succeed...

To Your Trading Success,

Tony Spann and the Team

Stock Trading Review is dedicated to helping you succeed as a trader by sharing with you simple and easy to follow tips and techniques.

Join our FREE "Stock Trading Review" NewsLetter http://www.stocktradingreview .com/stock-trading-newsletter.html to get your hands on some real world "insider" stock trading tips and techniques and access to our exclusive "Members Only" Free Stock Trading System.

You have permission to publish this article electronically or in print, free of charge, as long as the bylines are included. A courtesy copy of your publication would be appreciated.

Discover more insider secrets and the exact proven strategies to trade stocks profitably: http://www.stocktradingreview.com

(c) 2005 Stock Trading Review - All Rights Reserved.

In The News:

This RSS feed URL is deprecated, please update. New URLs can be found in the footers at https://news.google.com/news

Motley Fool

200 Stock Advisor Picks, 6 Conclusions, No. 5: "Using This Service, You Should Beat Your Mutual Funds"
Motley Fool
Journey in your mind back to March 2002. The stock market was still stumbling around in the aftermath of the dot-com crash, and retail investors were running scared. It was in that environment that Tom and David Gardner launched a monthly newsletter ...

and more »

Barron's

The Stock Market Was Scary This Week. Here Are 5 Mutual Funds for Income Investors
Barron's
Investors have plenty of options for income-oriented mutual funds. The table below lists five such portfolios, which are also known as multi-asset income funds. “Investors really need to look a bit deeper to see exactly what the strategy is to generate ...


CNBC

Cramer: We could be facing a cold war with China, and these stocks may be sacrificed
CNBC
"You have to be cognizant that the strongest stocks today were the techs that have no meaningful exposure to China, namely Amazon, Alphabet and Facebook," he said. "Bottom line? As mutual funds dump stocks of companies that trade with the enemy as ...

and more »

Forbes

Billion-Dollar Portfolio: 10 Stocks To Buy Now
Forbes
Under my definition, that's the line between a small-capitalization stock and a mid-capitalization one. I like this size because such stocks are small enough that they haven't been discovered yet by most big mutual funds or pension funds, but they're ...


NBC4 Washington

How to Protect Your Investments From Being Hacked
NBC4 Washington
Most people hold far more assets in stocks, mutual funds and retirement accounts than in bank accounts, making them prime targets for hackers. “We've seen activity, now, involving scamming 401(k) accounts,” Cyber Scout CEO Adam Levin said. That fraud ...


Zacks.com

Will Record Outflows Spell Doom for Mutual Funds?
Zacks.com
However, in the preceding week, all three major stock indexes fell and posted the worst weekly performance since March. Both the Dow 30 and the S&P 500 registered weekly increase after three consecutive weeks of loss, while the ... As per the latest ...

and more »

Investor's Business Daily

Growth Stocks That Fuel This Mutual Fund Manager's Outperformance
Investor's Business Daily
31, the fund managers had outperformed the S&P 500 for the calendar year as well as the previous three, five and 10 years. That four-for-four outperformance makes the Prudential mutual funds' portfolio an IBD Best Mutual Funds Awards winner. Merely 10% ...


Nasdaq

Is Schwab Total Stock Market (SWTSX) a Strong Mutual Fund Pick Right Now?
Nasdaq
If you're looking for an Index fund category, then a possible option is Schwab Total Stock Market (SWTSX). The fund does not have a Zacks Mutual Fund Rank, though we have been able to explore other metrics like performance, volatility, and cost ...
3 Best Mutual Funds to Buy as Industrial Production Picks Up AgainInvestorplace.com

all 4 news articles »

Investor's Business Daily

Best Mutual Funds Buying CVS, United, Lowe's And These Other Top Stocks
Investor's Business Daily
Eleven stocks from the medical sector made this month's list. Thirty-seven top performing mutual funds invested just under an estimated $160 million in biotech industry leader Biogen. Abbott Laboratories (ABT) (35 funds, $258 million), HCA Healthcare ...


TheStreet.com

US Stock Futures Gain as China Tax Pledge Sparks Rally, Steadies Global Market
TheStreet.com
Want to Buy $1 Worth of Stock for 90 Cents or Less? You can with certain so-called "closed-end" mutual funds - an often overlooked investment class. Click here to register for a free online video in which TheStreet's retirement expert Robert Powell and ...

and more »
Google News

Is Your Garage Full Of Junk?

I have a 2-car garage. There are nice shelves on... Read More

Dividend Paying Stocks

I would like to share with the reader an article... Read More

Mr. Market

I constantly hear the talking heads on CNBC-TV, the radio... Read More

Hedge Funds: the Good, the Bad, and the Ugly

Alfred Winslow Jones started hedge funds in 1949. He was... Read More

Jack and Jill

Jack and Jill went up the hill to fetch a... Read More

Attitude Is [Almost] Everything

I often play a little game with myself when I... Read More

Bollinger Bands Strategies

The Bollinger Band theory is designed to depict the volatility... Read More

Price to Earnings Ratio - P/E

After finding the price of a particular stock, usually the... Read More

Successful Trading ? Taking Profits - Part 2

Suppose your position has made a big move and you... Read More

Analyzing Growth Stocks: An Important Focus For Any Investor

Analyzing growth stocks is an important focus for any investor.... Read More

Buying New Issues

Has your broker been calling you recently with the "great... Read More

Trading as a Business

What can I expect to make my first year of... Read More

Who Knows?

The Shadow knows. Remember him? It seems a shadow has... Read More

Stock Market Course .... Day Trader Online Seminar ... Can You Generate Profits Trading from Home?

When it comes to stock market trading it PAYS to... Read More

Starbucks Stock is Up

Starbucks earnings are up again and so is their stock... Read More

Dividends

When is a dividend not a dividend?The latest thing "conservative"... Read More

Investment Capital Gains

Have you bought any mutual funds this year or late... Read More

The Three Little Pigs Went to the Stock Market

Three little pigs went to the market to stock up... Read More

Downdraft

For the year 2000 we have seen hundreds of mutual... Read More

A Stock Market Investment Plan that Never Lets You Down

The bulls and bears of the stock market are both... Read More

Market Globalization

Just 30 years ago the stock market was a shadow... Read More

Gold Fever

Right now there doesn't seem to be any "gold fever".... Read More

Leverage - Margin Debt

What is leverage?Here is a definition of leverage from an... Read More

Shorting Stocks ? The Basics, Part II of II

After the publication of the first part of this two... Read More

Financial Crime

Congress recently passed another new law that is supposed to... Read More