Theory on Trend Trading

Quote from illiquid:

When you are dependant on charts to tell you in the first place whether or not you are bullish or bearish, realize that you are at the bottom of the food chain and basically playing a game of musical chairs with other traders just like yourself who are also just jumping aboard anything that follows a trendline.

In this situation, the way to increase the odds of a successful trade would be to enter that trend as early as possible, preferably before the trend becomes apparent to others, and to exit before the music stops --aka, picking the top/bottom of said trend. In other words, doing that which a trend trader does not know how to do.
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nicely said, illiquid.

the public is the primary force in "trend trading" since it is near impossible for them do anything else.

surfer
 
Longer time frame: determine the trend:
- higher highs AND higher lows = up trend => enter only long
- lower lows AND lower highs = down trend => enter only short

Intermediate time frame: determine the position in the current trend
- middle trend: continue: hold if you're in, stay out if you're out; adjust your stops
- watch for end of trend / beginning of new trend
- watch volume


Smaller time frame: monitor it for a better entry / reversal.
- calculate your stops, risk reward/risk, position size
- watch volume

Watch channels, watch volume, use a minimum of indicators for confirmation.
 
Yep, see it coming, set your orders, get filled, set a STOP, you are good to go.

Get a small profit, move STOP to cover costs (the whole position, forget the nonsense of 1/2 here 1/2 there).

Now you have a free trade to play with. A decent trader in an instrument like the ES can/should get 80% of trade starts like this because he/she only takes "QUALITY" trades in the first place.

This is trend trading in a nutshell..........:D

This is the easy part, the harder part is hanging with the ride, that comes with experience and nothing else.

Exits on profits are to be only when you see a clear sign of a reversal. GET OUT, if it turns out to be just a retrace then decide if you want to call it a day or if you want to reenter.

ENJOY the rides.......A sweet game this all is.....:D
 
Glad to see all the responses.

And that everyone knows (mostly:p ) what a trend is.

I did not think about how to define the trend as I didnt think it mattered too much. I was just thinking (as an example) if your time stop on the trades was 5 days, than use the trend that the 50day MA shows. Or something simple like that. I am curious as to anyone's thoughts on how much do your odds improve when trading with the trend . Obviously there will be some correlation between the strength of the trend and the odds. But I simply do not have any idea of the magnitude. If I made 1,000 trades (with a 5 day holding limit each) with the respective trend of each stock. Would I have 600 winners? 700? 750?
 
If it was really REALLY important to you, you could create software (or pay somebody to create software) that did the following:

1. Define an "Uptrend" to be "times when the 10 day Moving average is above the 80 day moving average". Define a "Downtrend" to be "times when the 10 day MA is below the 80 day MA".

2. Write software that calculates the average daily price change (measured close-to-close) during "Uptrends", and calculates it again during "Downtrends", and calculates it a third time for all days (both uptrend days and downtrend days).

3. Compare the average daily price change during Uptrends, versus the average price change for all days. You expect/hope that price change is significantly more positive during uptrends.

4. Compare the average daily price change during Downtrends, versus the average daily price change for all days. You expect/hope that price change is significantly more negative during downtrends.

5. Compare the Uptrend average change, versus the Downtrend average change. You hope/expect that Uptrend change is quite a lot bigger than Downtrend change.

6. If you wish, do the whole analysis again but keep track of "% of up days" rather than average price change. You hope/expect that during uptrends, much more than 50% of days are up days. Similarly during downtrends, you hope/expect that much more than 50% of days are down days.

7. If you wish, do the whole analysis again but use a different definition of "Uptrend/Downtrend" rather than 10/80 moving averages. I recommend the Bollinger Oscillator, %B, as another good candidate.
 
It is so wonderful to see all of these different people defining a trend in so many different ways . . . makes my heart quiver to see traders using the old grey matter.
 
Quote from Eagletrader:

RunTrade

Excellent topic. I use WMAs & Long period Stochastics to define trend. I use the longer term trend for context ie take buy signals only in an uptrend and sell signals only in a downtrends..

There are a few charts & comments at:
http://eagletrader.blogspot.com/

Specifically at:

http://eagletrader.blogspot.com/2006/01/follow-system-dont-be-clever.html
http://eagletrader.blogspot.com/2006/01/classic-multi-timeframe-analysis.html

Happy to elaborate further if there is interest..

Best
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Eagle,

Thank you for the compliment. There are too few of them around ET.

The whole reason I bring this topic up is that is what my trading strategy is based on. I use the strongest trends (under my intricate definition) and enter with them. I realize that there is a better chance of profiting over losing because of the trend....but, the question remains...how much better:confused:


RT


PS: good links eagle.
 
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