Quote from trading_fishes:
also, to expand on the previous question.. how do you stay with the trend and what tells you that the trend is strong.. which obviously results in bigger profits. I have a tendency to exit all trade after 1-2 russel or S&P points as I am never sure when the trend might go against me all of a suddden... what gives you the confidence to ride it?
Good question. IMO, there are two types of traders--scalpers and trend followers. Scalpers make small gains using a system that produces high winning pct and small profits. Trend traders make gains using systems that produce small losses/large gains and typically have a low winning pct.
My background is swing/position trading--ie trend following. So, my confidence to hold on to the 2nd half of a trade probably comes from that experience.
What gives me confidence? Triple screening technical analysis helps identify short-term, intermediate term, and long-term trends. Confluence between the three can indicate strong momentum/trend. I also use a few indicators to help read market conditions:
* A simple method is to track the four major indexes; the Dow Industrial 30 stocks; and a few key sectors (ie Utilities, transportation, semis, banking/brokerages). if these items are making significant moves in the same direction (ie > .5-1%) then it usually indicates a trend is in place.
* the ratio of Advance/Declining stocks and volume are also good tools. Again, confluence between these two can indicate a trend is in place.
Both scalping and trend following have their pros and cons. Both present different challenges psychologically. I'm new to intra-day trading so I'm trying to use a "hybrid" system that locks in some profits via scalping the first 1/2 and then use the 2nd half to catch trends. It's not the best strategy, but, it's helping me get through the learning curve.
Sorry for the lengthy reply. I hope this was useful.
Good baseball game tonight BTW--I'm from the midwest so I'm rooting for the Indians.
Go Tribe!
