Make Money Trading Online

The Three-Point Guide To Help You Start Trading CFDs Successfully »

Will the Trend Stop or Will it Continue? – Part 2 Technical Analysis Trading

May 20th, 2010

Last time in our technical analysis trading series on Will the trend stop or continue we talked about how two tools are needed to measure a trend’s strength, while helps you decide whether a trend is going to continue or stop. The first tool was the proper setting of targets according to the market structure’s higher time period of resistance and support.

The second kind of tool would be momentum tools . To make appropriate judgments you should use momentum tools and apply them to a timeframe that is smaller than the one you are trading … essentially if you’re trading on a daily chart, trying to pick the low or high of the day with the trades , then you would be looking at an hourly or half-hour chart to give you support in your trading decisions intraday .

What are momentum tools ? one of the best is a short term moving average ; in a channel system use three moving averages and you’ll then have a matrix that you can use to measure a trend’s strength. Various channel systems exist but one of the most effective is the Drummond Geometry system (you should have learned this in your technical analysis trading course) which uses as its center line a short-term moving average of the average of the high, low, and close of the last three completed bars , projected forward onto the future bar . Then two channel bands are added to this based on similarly managed averages of the last three pivot points . Very effective judgments of market strength can be made by monitoring where closes occur sequentially in relation to this system .

You should also establish market "flow" by taking measurements using different price strength aspects, such as how close the close of the bar is to the low or high, the distance between close and open , the measurement of the range of the bar , and the progress that the bar is making through the matrix of resistance and support you have.

Another important tip : Since there is a system or support and resistance for each time frame, watch how easily or with how much difficulty in a trend the lowest timeframe monitor breaks its own support or resistance. If this happens easily, the underlying trend is more likely to be robust . If there is an uptrend, support close to the low of the bar is going to hold , and near by resistance will more easily and more often break . Resistance breaking and support holding in a lower time period- this is a very reliable sign of the strength of a trend .

These tips should help your stock trading strategy become a consistent winner as you learn how to distinguish between trends that are running out of steam and the trends that will go on for a long time. A course that helps you sharpen your technical analysis trading can save you a lot of time and money by providing you with the tools needed to make these distinctions, which are so important .

Tweet This Post