Trading Pal Blog

It is assumed that a trend is established if the instrument you are trading is reaching new highs (or new lows for a downward trend). But is there more to it?

Remember that a trending market occurs probably one third of the time. The rest (the majority) is spent fluctuating within a range.

So here is the conundrum: you want to get in early in the impending move to gather the maximum traction (profit) but you don't want to get slapped by false triggers...

Since the majority of the time is spent playing ping pong between the same two levels shouldn't you be trading that instead? When the support or resistance levels are broken you would be on a favourable trade already.

So far so good - that's the theory you're heard from information seminars and introductory books. But what is it like in practice?

The moment the future or commodity touches the boundary of the trading channel you will see a fury of activity if you have the chance of having access to an online trading platform displaying the pending orders placed in the market.

Why is it so? There is a tug of war going on. Some people are trading the channel and want to get out with the profit for that leg. Others are banking on a breakout and have stop orders in place to catch the move. Professional traders try to manipulate the market with large orders, hit all the stops in sight for a quick profit and dump their position quickly afterwards. What looked like a powerful oncoming breakout just fizzled out...

So what next? Have you considered using a trading indicator? Different people have their pet indicator. Some that come to mind are the Supertrend and the Kauffman adaptative moving average.

Only experimentation can determine if they are any good for the instrument you are trading. Yet again the common wisdom is that forex and commodities behave the best when traded with a technical analysis approach.

You have heard the phrase "the trend is your friend". What does it mean? Put simply it means that trading with a contrarian bias might be rewarding on paper but near impossible to get the right timing. Yes, you will leave some money on the table but a decent profit is better than no profit at all; or worst a loss to wipe out your last profit!

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