Definition of a Trend
A trend is the general, dominant direction of a market or an asset. If we say that the trend on the EUR/USD is up on the daily chart, then we are saying that he EUR/USD has been moving upward and is more likely than not to continue to do so
Investopedia has a good definition and section on trend trading here:
http://www.investopedia.com/terms/t/trendtrading.asp
Richard Dennis’ rules for trend trading can be found here:
http://www.robbooker.com/woodchuck/training/turtles/turtlerules.pdf
Our Methodology is in this section
Trend Trading has a Long History
Richard Dennis, is not the inventor of trend-trading, but he certainly made it famous. A famous trader named John Henry became so rich he was able to buy his favorite baseball team.
Do the all these trend rules work? Sure they do. People have made hundreds of millions of dollars following the rules. But are there other ways to trade with the trend besides the turtles, or the 60min system?, ofcourse! There have been a zillion discussions going on about the identification and proper trading of trends. The point is that finding a set of rules for trading with a trend is easy. That’s the easy part! The turtle rules, or 60min strategy above, are both free. No charge. That should be your favorite price. But once you get your greedy little mittens on the rules, what’s next? If the rules are so easy to find, then what makes the difference between a profitable trend trader and a losing one?
The Tricks Aren’t Secret at All
Everything you’ll read in this article is probably available elsewhere. But we’re going to try to incorporate the most important elements of a profitable trend trading system. But we’re going to go down to the things that might help you in your Endeavour to make a good trend following system.
1: Verify First, Then Trade
Most people totally ignore testing.
Spreadsheets, methodologies, statistical models can be made but must traders must realise that they must verify that a system works before they commit to trading the system with real money.
Don’t ever trade anything you’ve not tested first. What does it mean to test? It means that you propose some simple rules for trading. Then you go back in time, manually or mechanically, and you find out how those proposed rules would operate over the course of hundreds of trades. That’s right hundreds of trades.
Think about it for a moment: if you are not confident about your trading, it’s most likely because you have doubts about the outcome of the trades you are taking. And if you are doubtful about the outcome, then you need to do more testing until you have a better sense for what’s going to happen when you open a trade.
Its simple, charts are a image of fear and greed, crowd behaviour, If we find a pattern that repeats itself , then we know how the crowd behaves in that particular situation ; then we can profit from it.
2: Identify trend on different Time Frames
Reliance can be trending upwards on the daily chart, but on the 5 minute, it can be trending downward.
Really? Is that possible? Absolutely!
Think about it for a moment – if you have a long term, daily, dominant move upwards on Reliance it’s possible that in the shorter term we could see a movement in the opposite direction. So remember, if you want to be a trend trader, you can choose to follow the trend on a variety of different time frames.
If you have a full time job, you might look at trends on the daily and weekly charts.
If you are able to trade during the day, you might look at the very short term charts.We don’t trade from the 1 minute charts (at least right now) but we would be willing to follow a trend on just about any time frame. The point is that each time frame can have its own trend.
3: Trend Trading Requires a Stomach
If you want to become a trend-trader, you are going for the big moves. You are NOT going to be trying to get 1-2 Rs on each trade You’re going to want to get much more To do this you are going to have to commit yourself to a patient process of waiting for a trend to develop, and then to stay in your trades. Most futures traders are focused on the short term – and there are lots of jumps up and down in the short term. Have you ever noticed that after a major economic release, (say) Nifty will initially move in the direction you expect it to go, but then all of the sudden it will move the opposite way? The answer to this behaviors is usually that often that the trend was more dominant than the news.
Have you ever made a great trade, but you couldn’t stay in it long enough because you took a big loss? Meaning, you made the right call on the direction, but you got stopped out before the big move? The answer to this is that you traded too large. Scale back your position size if you’re going to ride the trend. Read Money Management in the Quick links section.
4: TV People are Wrong
Watch out for the news. Be wary of commentators on CNBC or NDTV profit that say things like “the trend on Sensex is certainly up,” These people don’t trade your account. They have no idea what chart time frame you are watching or what trading system you follow. Watching TV during trading is a bad idea. If you watch TV and you see some windbag get fanatical about one trade or another, then run away from your television as fast as you can. . Keep in mind that we didn’t say that you should NOT watch business news. We are just saying that we need to be careful about what we allow ourselves to listen to.
5: Add to winners
We at Tradersaint firmly believe that adding to your winners is the key to kingdom. Not only do we want to catch the trend but also have multiple contracts riding as opposed to a loosing trade. Every market wizard has stressed this point, Ride your winners. Enough said.
Conclusion
You can get rules for entering and exiting trend trades from all over the Web. They’re easy to find. What makes the difference in trend trading is doing the little things right – the stuff that most traders overlook. For us it’s all about discipline in your testing, in your trading, in your money management.
