Hello Traders! So how cliche is the title of this post? I think we’ve all heard the phrase, but we are going to delve into more than just following the basic trend of the stock. We can take the trend is your friend maxim to further heights and boost our trading to another level!
Before we get into the details let’s first review the basic definition.
Is a general direction of a market or of the price of a stock. This can be identified by spotting higher highs or lower lows in sequence.
First thing we need to note is that trend happen not only in markets and stocks but also in sectors and industries.
In trading our goal is to put the odds as far in our favor as we can. The higher probability the trading setup the higher probability we make money, which is the ultimate measuring stick for trading.
So when it comes to the trend being your friend you don’t just want to find a stock that is in a clear up or down trend. You want to take a big picture approach and work your way down.
Top down approach
Start by looking at the general market. Are the Dow, Nasdaq or S&P 500 in clear trends. If so, what kind of trend are they in? How long has the trend been intact?
Next look at the sectors. Which sectors are trending with the market, which one is the strongest?
Now you look at stocks in the top trending sectors. Which names are in clear trends and leading the move within the sector? Which have seen the smaller pullbacks or retracements within the trend?
By answering these questions you are creating a list of stocks to trade that are in a trend that is in tune with the market. That’s what I call putting the odds in your favor!
For detailed instruction on recognizing trends and building out a list of trading candidates check out the Active Trading Blueprint.
Remember, “Victory Loves Preparation”