Barry Burns

The practicality of trend trading is that you're waiting for the market to "show its hand" by establishing a clear direction and then jumping onboard for the ride.This handy Cheat Sheet provides an overview of how to follow the big-money market players to the glorious land of profitability. Get tips on why trend trading works so well, how to determine a trend that will continue after you enter the market, and how to manage your risk once you're in a trade.

The most obvious indicator for measuring momentum for many traders is the aptly named momentum indicator. It simply measures the amount that a market’s price has changed (often referred to as rate of change) over a given period of time, which you designate (14 bars is a common time period). Another way to express the momentum indicator is that it measures the current bar’s closing price to a specific number of previous closing prices (such as the closing prices of the last 14 bars) and gives a reading as to how fast price is moving in a direction.

Trend trading is one of the most popular approaches to trading. It’s been around for decades because it’s a proven approach to making money in the markets. Understanding why trend trading works may give you more confidence in trading the trend. Trend trading has a rationale behind it that has its roots deep in human psychology.

Trend trading has been an extremely popular approach to making money in the markets for as long as trading has been documented. Even those who don’t consider themselves primarily trend traders often consider the trend as part of their market analysis. With so many people looking at market trends, the question, “Exactly how do you determine and measure the trend of any given market?

More markets are available for trading today than ever in the history of the world. The markets aren’t just available, but public access to them is easier than ever before. With the advent of computers, high-speed Internet access and online electronic trading, you can sit home and trade stocks, commodities, bonds, currencies, futures, and options all around the world from the comfort of your home.

Moving averages may be the most common type of indicator used for charting the markets. Like Bollinger Bands, they’re plotted on the same graph as the price bars and provide not only an indication of the trend of the market but also support or resistance barriers as price moves into the moving average lines. Support and resistance are price levels in the market that price bars may have trouble moving through and therefore often bounce off of them.

Previous major highs and lows are one of the most common and reliable support/resistance levels. They work because they’re visible without traders having to use any particular indicator. They’re obvious to everyone looking at a price chart. Support/resistance levels work because the masses of people trading the market respond to them.

Trading to the long side or going long simply refers to buying the market first and then selling your market position later. The idea is to buy at a low price (relatively inexpensive price) and sell at a higher price to make a profit. In other words, “buy low, sell high.” Most businesses trade to the long side.

Trend trading begins with determining the trend. The trend of the market is defined as the long-term direction of the market. But how do you determine what that direction is? You can look at a chart and see that from the left side of the chart to the right side of the chart, the market has been moving up. Based on that observation, you may say that the trend is up.