Trend Trading Basics

[merlinnn]

Hi Everyone,

I am after some confirmation from the experienced out there in relation to trend trading;

I understand I am looking for the following going long and the opposite when going short

At least 2 x higher highs and high lows from the closing price or vice versa for shorting. Does price need to have broken through resistance levels and vice versa support when shorting?

Also what bearing does volume have in both scenarios?

Also how does one ascertain what time frames to chart as in hourly, daily or weekly? I assume this differs on the product being traded, asx200, index futures, commodities?

Thanks

 

[tech/a]

Hi Everyone,

I am after some confirmation from the experienced out there in relation to trend trading;

I understand I am looking for the following going long and the opposite when going short

At least 2 x higher highs and high lows from the closing price or vice versa for shorting. Does price need to have broken through resistance levels and vice versa support when shorting?

No there are good moves long and short between resistance and support.
Your criteria is conservative and often moves have greatly matured by the time you see the 2 high highs/lower/lows. A lower timeframe may help with timing.

Also what bearing does volume have in both scenarios?

A very involved topic in itself.
Volume INTO Resistance/Support generally means that it will hold.
Volume blasting through it generally means (After an initial retracement) that it will continue through ---further

Also how does one ascertain what time frames to chart as in hourly, daily or weekly? I assume this differs on the product being traded, asx200, index futures, commodities?

Trends occur in all timeframes.
You need very liquid products and normally leveraged products to trade shorter term < 1 day.
I trade 1-3 min charts.(Index futs).

 

[merlinnn]

Thanks Tech,


I have been utilising Nicks services for the last two years and now have a burning desire to teach myself. Nicks services are great, but I am now realising I learn by doing and not necessarily following.

I have also noticed on a personal level support and resistance make sense to me when looking at a chart, but understand they are only a few of the tools one can use. Hence the reason to jump on the trend regime. Can you recommend further study in this area and if so what?

 

[tech/a]

I'm still a member of Nicks service.

I've learnt a great deal over the years reading all of nicks analysis and commentary.

The best advice I can give is look at 1000 s of charts
Record what you see and you'll soon find patterns and characteristics that are repeatable/tradable and Profitable.

Levels should be fuzzy rather than ridgid.

There are great you tube vids with lots of obtuse ideas and lots of theory on what works and why.
Lots of papers on the net.

It really is time at screen

 

[merlinnn]

Thanks for your time Tech.

A question in relation to support and resistance, how far back in time should one go with the chart to validate s and r points. For example, can you bring up a weekly chart for the last 12 months and establish 5 or 6 levels?

 

[Pnut]

Thanks for your time Tech.

A question in relation to support and resistance, how far back in time should one go with the chart to validate s and r points. For example, can you bring up a weekly chart for the last 12 months and establish 5 or 6 levels?

Hi Merlinnn,
My opinion would be to get as much data as possible. The Insiders always remember a special number that may not have occurred in the last 12 - 24 Months. An important rule is "Look Left" if the data isn't there you can't do it.
You have the right idea by going for trend trading, you should consider why a share is trending ( Usually a change in circumstances either known or unknown at the time).

There are a variety of rules / triggers you can use to define your entries and your exits. I would say with Aus shares daily is fairly solid in the sense that you will see good movement at the open and the close of the day so traders are respecting the daily chart.

Back testing is where you will get reward and familiarise yourself with the instrument you want to trade. I personally have 5 shares on my list that are giving a 10 - 20% swing on a regular basis and follow them scanning through every now and again for new ones to add.

I got a great ride out of TLS over the last year but it is now showing signs of a blow off top. I will still buy the next signal. Even if it turns out to be a looser I will still be in front because I stuck to my plan and only went long at the signals and I took my profits at the predefined levels.
Hope this helps,
Pnut.

 

[john455849]

op, choice of markets has some importance in trend following, as someone said the markets (ie charts, as you wont really be concerned with any fundamentals or news) should be as liquid as possible, trend following can involve a larger number of transactions so commission costs are a factor, and one of the main reasons trend following of actual shares is not ideal, to trend follow shares (ie the price of the shares, not the shares themselves) it might be best to do so via cfds or spread bets, best markets of all for trend following are forex, commodities, and indexes, being able to go long or short is essential really

the other most important consideration is your money management (ie risk), far more important than entry signals are the terms by which you exit, with a loss or with a profit, and the risk per trade

you can successfully trend follow on a mere 1%, of account value, risk per trade, eg if your account value is for example $1,000 aud, then you can risk $10 on your first trade (use this $10 to determine your size, in relation to the position you first decide to place your stop loss (ie your exit with loss)

if, for example, your first trade goes well and youve made $100 profit, your account value will now be $1,100, so on your next trade you can risk $11, thus accumulating your profits when you win, in order to increase the size of your bets

a third important thing, win big, lose small, limit your losing trades with stop losses (eg, to $10), but never set take profits, let your winners run as far as they can go, you can use a trailing stop if you wish, or simply move your stop to the lows as they are left behind, once the trend eventually reverses your stop gets hit, and you exit the trade, with a bigger profit

you need big wins in order to stay ahead of your small (and sometimes many) losses, that is very important in trend following, good luck

 

[tech/a]

op, choice of markets has some importance in trend following, as someone said the markets (ie charts, as you wont really be concerned with any fundamentals or news) should be as liquid as possible, trend following can involve a larger number of transactions so commission costs are a factor, and one of the main reasons trend following of actual shares is not ideal, to trend follow shares (ie the price of the shares, not the shares themselves) it might be best to do so via cfds or spread bets, best markets of all for trend following are forex, commodities, and indexes, being able to go long or short is essential really

Why does trend following attract more commissions?
What are other trading methods that don't involve catching a trend? Other than Arbitrage

the other most important consideration is your money management (ie risk), far more important than entry signals are the terms by which you exit, with a loss or with a profit, and the risk per trade

How does this differ from any other trading method? (Whatever that method maybe---Ive not seen one yet that doesn't involve profiting from a trend??)

you can successfully trend follow on a mere 1%, of account value, risk per trade, eg if your account value is for example $1,000 aud, then you can risk $10 on your first trade (use this $10 to determine your size, in relation to the position you first decide to place your stop loss (ie your exit with loss)

Suppose you could but you'd need a much larger bank than $1k.
Brokerage would smash you.

if, for example, your first trade goes well and youve made $100 profit, your account value will now be $1,100, so on your next trade you can risk $11, thus accumulating your profits when you win, in order to increase the size of your bets

Compounding

a third important thing, win big, lose small, limit your losing trades with stop losses (eg, to $10), but never set take profits, let your winners run as far as they can go, you can use a trailing stop if you wish, or simply move your stop to the lows as they are left behind, once the trend eventually reverses your stop gets hit, and you exit the trade, with a bigger profit

Maybe.

you need big wins in order to stay ahead of your small (and sometimes many) losses, that is very important in trend following, good luck

What if I have far more wins than losses?
Why am I likely to have many losses?---do you mean over any other method--if so can you give me an example.

 

[burglar]

Why does trend following attract more commissions? ...

"Buy and hold" has half the brokerage per trade!

And if you hold KO:NYSE for decades your seed capital is tied up!
So you cannot trade every night!

Methinks. :

 

[tech/a]

Totally different topic

Opportunity cost

Every trade in every timeframe is
Looking for a trend --- long or short.

 

[merlinnn]

Thanks for your advice everyone. Thanks to utilising Nicks services for the last few years I understand fixed fractional positioning and basic risk management.

I guess my issue at the moment is what universe does one choose from and how in relation to stocks, commodities etc? Do you choose the S&P500 or ASX200 or ASX50? Should I invest all my time into studying the futures market?

When I initially started trading several years ago it was in FX as I found it simpler to study 2 or 3 pairs daily and become familiar with points of S & R.

 

[tech/a]

Start ASX200 and perhaps an Index future HSI or FTSE
Not the SPI
Once you understand how to trade you'll also see " some " similarities
Other instruments.

Learn how to rest methods and while you do you'll find
What you DONT need to know.

Watching good traders trade is often very helpful as you know
With " The Chartist " watching Radge improved my trading
Exponentially.

 

[Pnut]

but never set take profits, let your winners run as far as they can go, you can use a trailing stop if you wish, or simply move your stop to the lows as they are left behind,

I would not agree with this statement. The problem I have found with that system is that you are moving your stop closer and the target further away. Your target will never get hit because you don't have one. Your stop will continuously get hit add in the slippage and say good bye to your trading account.

Your win / loss rate will be at about 5-15% with the odd big winner. Even though there are many traders who recommend this it is in my opinion not the best way.

What is wrong with having a high win rate of say 75 - 95% and taking a 10% move as your target.

If the ( loss = or < win ) then on the balance of probabilities you will be in front because you have more winners then losers. If you believe you can't get more then 50% win rate stop trading.

Below is a pic of BSL. There is about $3.10 combined (50% of the share price) in four trades of profit with the last one being a loss $0.50 (10% of share price)



I managed to get a couple of the trades and made a profit. If I had of waited and trailed up with a stop I would have been continuously stopped out with a small profit not allowing for slippage. The reality is that the traders who make money take profit if they didn't then the price would continue to rise. It's the winners that are helping the price revert to the mean by taking a profit in the stop zone just above the previous high, where the short sellers put their stop.

My thoughts Only.
Pnut

 

[tech/a]

Yes I agree PNUT.

Maximisation of profit is a subject within itself.
The ART of extracting as much as you can from a move
and the duration of staying in a trade is
best honed through discretionary trading.

Systems trading is very in efficient in maximising profit.
I touch on the topic here!

https://www.aussiestockforums.com/forums/showthread.php?t=29509

An important topic!

 

[merlinnn]

I managed to get a couple of the trades and made a profit. If I had of waited and trailed up with a stop I would have been continuously stopped out with a small profit not allowing for slippage. The reality is that the traders who make money take profit if they didn't then the price would continue to rise. It's the winners that are helping the price revert to the mean by taking a profit in the stop zone just above the previous high, where the short sellers put their stop.

My thoughts Only.
Pnut

I am starting to realise this, but its a fine line when learning. I was $400 up on a gold etf the other day and am back to break even now! Up $500 ish on BHP now, sell take a profit and wait for the next opportunity or hold on for the ride??? I need to put some rules in place now!! I have read cull your losers and let your profits run, but personally from a discretionary point of view small consistent profits I imagine would be better for the mental health.

For example I used to like trading Radges mean reversion system as the results were generally in a day or two with small, but consistent profits and the occasional larger loss. However his traditional growth portfolio whilst providing some substantial profits in % terms, often got to me through prolonged losses over a few weeks. After a year or so you could almost start to see the losers before the systematic exit point was reached. Likewise with the winners, there were very few that reversed and turned into losses. A big problem for me was after a year of trading the system was maintaining the systematic approach, irrespective of myself making my mind up about which way the trade was already heading a week or so in. Typical beginner problems I guess.

Lets say I am going to devote my research to the ASX200, what are the best tools to scan with, so as to narrow results down on a daily basis? How do you guys and girls do it?

 

[Wysiwyg]

At least 2 x higher highs and high lows from the closing price

Ran that test and it picks up prices trending long term down as well as long term up. Need better trend entry criteria. Also exit is the ultimate decider I believe. You could buy every up trending stock in the Index but what continues and what ends and what pauses for an unknown period is (mostly) unknown.

If you haven't got a (or a few) successful exit strategies then nothing works. Oh, and an up trending Index helps to float more boats (see confidence, sentiment etc.).

 

[AlterEgo]

Lets say I am going to devote my research to the ASX200, what are the best tools to scan with, so as to narrow results down on a daily basis? How do you guys and girls do it?

Amibroker

 

[Pnut]

Up $500 ish on BHP now,

Lets say I am going to devote my research to the ASX200, what are the best tools to scan with, so as to narrow results down on a daily basis? How do you guys and girls do it?

With BHP I was under the impression you were interested in trend trading. Which would indicate lower highs lower lows would be a sell about here somewhere. If you are long BHP that would probably be considered counter trend trading.
Jesse Livermore's favourite read was a book called "Extraordinary Popular Delusions of Crowds" which demonstrates quite well the possibilities of a good trend.



My opinion as far as scanning the ASX goes, make a short list of 10 or so stocks that are having regular swings of 10 - 20%. You will probably find that the ASX Options series has some that meet this criteria. Then just wait and watch have the high probability trade plan all worked out what you are going to do. Then when the opportunity rises trade your plan.


tech/a has some very valid ideas and concepts in this thread.
https://www.aussiestockforums.com/for...ad.php?t=29509

My thoughts Only Not trading advice.
Pnut