How do you trade with the trend and not against it? When the stock is at support, and it has begun moving higher, that is your buying opportunity. However, if you are selling and the stock is at resistance and moving lower, that is your selling opportunity.
You should always wait for the stock to pull back to support and turn; then you buy. Do not buy a stock just because it has hit a known support or buying zone. Wait for it to turn and then make your move. It helps you avoid buying a stock that bucks the trend and, instead, only plummets. You don’t want to buy a plummeting stock as you want to buy it when you know it is on the rise. Always trade in the direction of the momentum. This is vital, and what trading the trend is all about.
Knowing the types of trends, you are looking at will help you better understand the behaviors of your stocks. A Bullish Trend is a pattern of higher highs and lower lows than the previous ones. A Bearish Trend is a pattern of lower highs and lower lows.
Charles Dow is known as the father of Technical Analysis and the number one tenant of the Dow.
The theory is that a trade is assumed to be in effect until it gives definite signals of reversal.
The chart above shows that the S&P 500 (SPY) is in a bullish trend. The stock is consistently getting higher highs and higher lows on its trades. To trade this trend, look for opportunities to buy when it is bouncing off of support. In a bullish trend, you are “buying the dip.” As previously explained, let the stock hit a low and begin to turn or bounce back up before you buy. Then buy the stock as soon as it bounces.
When you are dealing with a bearish trend, you are looking for opportunities to sell. You want to sell when it’s pulling back from resistance. In a bearish trend, look for the stock to hit resistance and then turn or bounce back down. This is the exact inverse of your bullish trend action.
To be sure you are following so far, here is the basic layout of this ultimately powerful and ridiculously simple way to make money on the stock market:
By now you are getting good, really good! I would even call you a “Trending Trader”! Trading is simple. Don’t over complicate it. Grow your skills in the art of making money by following this blog series and by checking out all the resources available at www.tradesmartu.com!
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