An understand of technical stock market analysis can be a valuable tool in determining the trend of any market
and assisting with entry and exit levels for your trades.
Using technical stock market analysis to determine when a market is trending
(and just as importantly, when it is not) is a good way of putting the odds in
your favor when you enter the market.
As a general rule, strongly trending markets have small reactions of between 1 and 4
bars on any chart you may be looking at, so we are always trying to enter trends
These bars can be for time periods of a little as one minute for day-traders,
up to weekly or even monthly charts for long-term investors.
All it takes is a couple of trends like this a day for day-traders, or a
couple of strong trends each year for long-term investors, to make a lot of money
Unfortunately, many people fight the trend and buy or sell at every small
change in direction,
thinking they have picked the top or bottom of the market, only to see the trend
continue on it's merry way immediately.
By the time the trend is finished, these traders have spent
their psychological and monetary capital in a futile attempt to pick the top or
Another common mistake traders often make is increasing their position size
when they are wrong,
or averaging a loss (sometimes called dollar cost averaging).
This can (sometimes) work for long-term investors (but only sometimes), but
it can be a very dangerous strategy for traders. It is often advocated by well meaning
friends and others when they hear of a loss you are facing - they justify it by saying things like "You don't lose
money until you sell".
Of course we know that this isn't true - a loss is a loss no matter when you
take it. Better to take it sooner rather that later or you won't have a trading
account left to trade with. This kind of strategy can prove disastrous to a
trader, you don't want to go there.
Remember - The trend is your friend, so don't ever buck it.
The correct use of technical stock market analysis also gives us a mechanical indicator to use for entries and exits, and
takes a lot of the guess work out of our trading. It is very hard to argue with
the trend being down if you are looking at a series of lower
tops and bottoms on your chart.
Will every trade be a winner if your technical analysis skills are good?
Of course not. Losses on some trades are inevitable, as we cannot know for sure what the
market will do.
If you are a day-trader, it only takes one large trader dumping a bunch of
orders into the market to
invalidate your perfect trade set-up and send the price of anything in the
opposite direction to what you were certain was going to happen.
If you are a longer-term investor, it can take more than one big trade to
change the trend, but still you are going to have losses when you get it wrong.
All our analysis can do is alert us to probabilities - there are no
certainties in financial markets. This is the hardest thing for most traders to
accept. We all hate to be 'wrong', but that is the nature of the trading business.
All we can do is take every trade our analysis gives us and see what happens. The better our
stock market analysis and our trading system, the more likely our trades will produce
profits over the long term.
So remember, the large profits come from identifying a strongly trending market
in whatever time-frame you are trading, and taking
multiple positions (limited of course by your trading account size and tolerance
for risk) with that trend. You need a system to identify these strongly trending
markets and alert you to the potential of a trade.
To get you started on your way to finding that system and understanding how to trade the market of
your choice, grab a subscription to our Free 5 day Futures Trading
You'll learn the 5 key ingredients to successful trading and how to apply
them to your preferred market no matter what your current level of
It's easy to subscribe. Just put your First Name and Primary Email
Address into the form below and click on the Free Instant Access button.
Copyright 2016 Futures Trading Coach
Trading Made Easy LLC
HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.
ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADE PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF THE HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.