Question:
How does one know the beginning and end of a trend?
PJ from Hillville
Answer:
PJ, your question goes to the heart of trading itself. Every trader on the planet … No check that … Every trader in all the infinite parallel universes would like to know the answer to the question you ask. Perhaps, the better way to phrase your question would be: How does one identify the potential beginning and potential end of a trend? “Potential” is the key word here.
Whether you trade intraday on the minute or you look for movement over a period of weeks or months, the “trend is your friend.” Every trader looks for an entry on movement and an exit BEFORE that movement ends, and every trade hopes that they are right, both on entry and exit.
For many of the unprepared, buying in and selling out of a trend (or visa-versa) is a crap shoot, a red or black on the roulette wheel. For many others, though, a mathematical formula brings them success. Still, for other successful traders, technical patterns identify the beginning and end of a potential trend. Even fundamental traders look for financial information or potential “news” that will start or end a trend. The point is that no one answer exists for your question. This being the case, I will tell you what I do to identify the beginning of a trend, and why I generally don’t care about the end of a trend.
I use VantagePoint software for my trading. The whole point of the software is to identify potential trends using intermarket analysis. In my opinion, if intermarket analysis is not the basis of your search for trends, you are missing an opportunity. You see, intermarket analysis, combined with neural networks, takes into account a wide variety of interconnecting global factors that can affect market movement, and then it forecasts market movement. This is quite different from trying to predict market movement based on information relative to only one market, otherwise known as single market analysis.
I am not saying intermarket analysis is the only approach that works. Many traders successfully utilize single market analysis. No, what I am saying, clearly, is VantagePoint utilizing intermarket analysis is what I have found works best for me, as I like my trading simple and easy. I like the fact that a piece of software does the heavy lifting of crunching data, and I like the fact that all I have to do is set my filters and the markets with potential up trends appear. Yes, it is that simple.
This simplicity, though, brings us back to the difficult aspects of trading successfully. Just because I have a piece of software that HELPS me indentify potential market trends, it does not mean I, or anyone, can rely on it solely to trade successfully. You have to have trading knowledge and experience, which is years in the making, and you have to know when to get in and out with a profit. Knowing the latter is an artful endeavor, and it is where most folks fall off the wagon, I suspect. My software helps me somewhat, but, ultimately, it comes down to you and your trading strategy, and this is why I don’t care about when a trend ends. My trading strategy dictates the use of stops. Thus, if a trend moves against me, I am out with a known loss. If it moves for me, I am in with a stop that will take me out when the trend ends. Make no mistake, we are gamblers. Most gamblers lose, which is why Casinos make so much money. Those who are successful, though, have an edge and they know how to use it. Find your edge …
Trade in the day; invest in your life …
