In today’s episode…
I’ll share with you the art of trading trends like a pro.
Well, I’m not talking about how to trade an uptrend versus a downtrend.
But rather, the different kinds of uptrends (or downtrends).
Because you can’t have a fixed entry and exit strategy, thinking it’ll work in all trending markets — it won’t.
So if you want to learn all about it, then tune in to today’s episode.
- Why not all trends are created equal and what to do about it
- How to time your entry in a trending market (hint: it depends on the type of trend)
- How to tell whether you should ride the trend or just capture one move in a trend
So listen to it right now…
How to Identify and Follow the Trend
Hey hey, what’s up my friend!
In today’s episode, you’ll learn how to trade trends – like a PRO.
So whenever traders see a trend…
“Oh, the market is in an uptrend!”
“Let’s buy, buy, buy!”
But here’s the thing:
Just because the market is in an uptrend doesn’t mean that you want to buy immediately.
Why is that?
Because not all trends are created equal.
In fact, trends can be broken down into three categories:
- Strong trend
- Healthy trend
- Weak trend
Let me explain…
This is the type of trend where the market is usually very strong.
The pullback is very shallow, and the market just keeps going higher day after day.
(By the way, all that I’m referring to is an uptrend, a downtrend is just the opposite.)
In a strong trend, the market usually will not exceed the 20-period moving average.
How to time your entries in a strong trend
So if you want to buy in a strong uptrend, waiting for a pullback can be difficult.
Because the pullback is just so shallow.
It may not even come to the level that you’re looking for.
So that’s why in a strong uptrend, you’ll want to go with a breakout trade.
You want to be buying breakouts in an uptrend.
For example, if the price breaks above the swing high…
You can look to get on board the breakout.
How to manage your trades in a strong trend
And since the trend is strong, you can set your stop loss a distance below the 20-period moving average.
That’s the area where the market tends to find support.
And in a strong uptrend, I usually try to ride the move.
The pullback will be relatively shallow, and it’s quite easy to hold the trade because the market is moving strongly in your favour!
So I tend to hold my trades longer in a strong uptrend.
The second type of trend is what I call the:
In a healthy trend, you can see the ebb and flow of the market.
And it’s quite obvious.
A pullback usually would not exceed the 50-period moving average.
How to time your entries in a healthy trend
Since a healthy trend is weaker than a strong trend, you can time your entries on a pullback.
It’s possible to time your entry on a pullback towards:
- The 50-period moving average
- The previous resistance turned support
What about breakouts?
Can you buy breakouts in a healthy trend?
Yes, you may.
But bear in mind that if the retracement comes…
It’s going to be deeper than a retracement in a strong trend.
This means that your stop loss should be wider when trading breakouts in a healthy trend.
Because if you buy the breakout and your stop loss stays just below it…
You’ll get stopped out if the price pulls back to the 50MA.
If you want to trade breakouts in a healthy trend:
- Your stops should go below the previous swing low in an uptrend
- Your stops should go above the previous swing high for a downtrend
How to manage your trade in a healthy trend
In a healthy trend you have two options:
- Capture a swing
- Ride the trend
Let me explain.
1. Capture a swing
If the price pulls back towards the 50-period moving average, there’s a distance from the MA to the previous swing high.
So there’s a swing higher that you can capture.
That’s one way you can look to exit or to trade a healthy trend.
2. Ride the trend
Alternatively, if you want to ride the healthy trend you can use the 50-period moving average.
But bear in mind that when the pullback comes, it’s pretty deep.
So you’ve got to “swallow” the potential pullback if it comes.
And this brings me to the third type of trend.
A weak trend is where the pullbacks are deep.
It usually retraces towards 100-period moving average or even more than that.
A weak trend also tends to retest the previous area of support.
How to time your entries in a weak trend
So when you notice a trend is weak and that the retracement is very deep…
You don’t want to be trading breakouts.
Because there’s a good chance that even if it’s an uptrend, the pullback will be more than what your stop loss can withstand.
So in a weak trend, you want to either be:
- Buying the pullback towards the 100MA
- Buying pullback towards the area of support
How to manage your trade in a weak trend
In a weak trend, I don’t try to ride the trend.
Since the pullback is very deep, it’s difficult to hold onto your trades.
I prefer to just capture one swing and consider taking profits at the previous swing high or the first market structure that it touches.
So these are the 3 different types of trends that you want to be aware of.
With that said…
I have come towards the end of today’s episode, and I’ll talk to you soon.