Trend Trading Report Part I - Introduction

My passion is to teach beginner and intermediate- level long-term investors and short-term traders how to make money trading stock online and trading forex online. A great deal of the content in this Report is applicable to both trading stocks and trading forex. However, in this Report, the content and the examples will be directly associated with trading stocks.

Trend trading is my favorite way to trade because I find it to be one of the most profitable strategies for the conservative trader. Trends can be viewed from a short term, intermediate term, and long term perspective. Therefore, trend trading can be used by short-term-traders, intermediate-term-traders, and long-term-investors.

What is Trend Trading?

Investopedia defines trend trading as "A trading strategy that attempts to capture gains through the analysis of an asset's momentum in a particular direction. The trend trader enters into a long position when a stock is trending upward (successively higher highs). Conversely, a short position is taken when the stock is in a down trend (successively lower highs).

Investopedia goes on to explain "this strategy assumes that the present direction of the [asset's price] will continue into the future. It can be used by short-, intermediate- or long-term traders. Regardless of their chosen time frame, traders will remain in their position until they believe the trend has reversed - but reversal may occur at different times for each time frame."

Consider the above definition in simpler terms.

• Trend traders look for a trend to appear where the price is at one level and it is expected to continue upward to a higher level.
• Conversely trend traders can look for a trend to appear where the price is at one level and it is expected to continue downward to a lower level.
• That is to say, there are ways to make money when price is trending upward or downward.

To make this report easy to understand I will only refer to trends that are moving upward. That is referred to as "going long" or "trading the long side of the market".

• The important point is to remember that profitable trades must include a trend or it will be impossible to buy at one level and sell at a higher level (aka buy low sell high).
• Once the trend shows that it is coming to an end, the trend trader will exit the market in order to secure a profit.

Trend Traders Make Lots of Money

Please pay attention because this is important. Trend Traders can make a lot of money. However, but that's not always true. Consider the following comments:

1. Some Traders believe that if they can produce a profit on more than half of their trades, then they'll be profitable overall. That's not always true. For example, if you lose more in your losing trades than you win in your winning trades, overall you could  lose money.
2. It's critically important that you invest your money in trades that you have strong reason to believe will turn out to be profitable. Wishful thinking doesn't count.
3. You don't have to be the best trader, just a good one that wins more than they lose. For example if you have 10 winning trades with an average profit of $250 and you have 10 losing trades with an average loss of $150, you'll end up with a net profit of $1,000. That's the sign of a good trader.
4. Even the best of professional traders do not make money on 100% of their trades. A winning percentage of 70% is exceptional.

Success As A Trend Trader Requires Education, Dedication, and Experience

Trend Trading is not gambling. Traders must develop an understanding of what they're doing, how to do it, and why they're doing it. If a new trader jumps right in and invests some money without getting any training, that's gambling. In contrast, spending time gaining knowledge, developing some experience, and remaining dedicated to your success as a Trader will lead to success.

I commend you for reading this Report. This is the start you need in educating yourself as a Trader.

Where To From Here?

To make this report most effective for all short-term traders, My intent is to focus on the following subject matter, although there may be some additional content that will creep in as I put this report together.

Part II -            Market Conditions

Part III -           Recognizing The Trend

Part IV -          Simple Candlestick Patterns

Part V -           Complex Candlestick Patterns

Part VI -          Introduction To Chart Patterns

Part VII -         Support, Resistance, & Trendlines

Part VIII-         Trend Following Patterns

Part IX -          Trend Reversal Patterns

Part X -           Developing Your Own Trend Trading System

Part XI -          Developing Your Own Trading Plan

Part XII -         Developing Your Own Trading Strategy

End of Part I

Part II of this report will be released in about one week. The topic is "Market Conditions And The Role They Play In Trend Trading".

Each week, I'll send via email a copy of that week's posting of the Report to each person that has correctly filled out the Contact Me Form at the top of the right sidebar. You only need to complete the form once. But it is important that you include your first name, last name, email address, and that you request a copy of the Trend Trading Report in the message field of the Contact Me Form. After that you will continue to receive via email the weekly posting of the Report. You will also receive a pdf copy of the complete 12-part report when it is finished.

Posts released prior to your signing up for the Report will not be sent. Sign up now.

Trend Trading Report

Buying Stocks Online is all about teaching beginners and intermediate-level investors and traders how to make money trading stocks, more specifically trading stocks online.

Stock trading price action can be broken down into upward (ascending) trends, downward (descending trends), and choppy trading action.

Choppy trading action generally involves some form of consolidation pattern which is sideways, slightly upward, or slightly downward but in limited price ranges. Trading during periods of consolidation is definitely short term. Some traders make money trading during periods of consolidation, but most traders that trade consolidation patterns trade the breakouts (upside or downside) when the price action breaks out above resistance or below support.

I believe that the best trading opportunities are during trends. Some traders refer to it as trend trading.

Trend traders base their trading decisions on:

• Price action
• Candlestick formations
• Chart patterns

Over the course of the next few weeks I'll be presenting a series of posts including:

• Trends - what are they and how to recognize them?
• What is the difference between candlestick patterns and chart patterns?
• Chart patterns - what are the various types of chart patterns?
• Trend following patterns - what are they and how to recognize them?
• Trend reversal patterns - what are they and how to recognize them?
• Candlestick formations versus chart patterns - pros and cons

If you would like a copy of this report when it is completed, simply use the contact form in the right sidebar. Enter the following information:

• Your name: first name followed by last name
• Your email address: Where you'll receive your report
• Subject line: Trend Trading Report
• Message: Please send me a free copy of the Trend Trading Report

You should receive your free copy of the report within the next few weeks.

Trading Stocks Online - Advantages

All stock market trading, including trading stocks online, includes an element of risk and it isn't for everybody. However, if you're going to get serious about trading as an independent investor, then you need to learn how to buy and sell stocks online.

 

For those individuals that aren't familiar with the term 'independent investor', let me clear the air on that question right away. An independent investor is a person that makes their own investment decisions. They have gained sufficient knowledge and experience that they can make their own independent decisions as to what to buy, when to buy, what price to pay, and when to sell.

 

With that information as a background, what are the advantages of trading stocks online?

24/7 Unrestricted Access
Our lives seem to get busier and busier. Businesses and relationship cause us to travel to many different areas of the country, if not the world. Now, investors can benefit from:

• Global access to their personal trading account via an internet-connected desktop, laptop, or mobile device anytime of the day or night seven days-a-week. Trades entered after trading hours will be executed at the beginning of the next trading day.
• Quick access to charts and data on any publicly traded stock or fund.
• Unrestricted buying and selling of any publicly traded stock or fund without experiencing the pushback that a broker might have given you.

Online Investment Tools
Online stock brokerage accounts often come with all the features you need to effectively manage your portfolio and to quickly search for high quality stocks. This includes:

• Stock charts
• Technical indicators
• Stock screeners/scanners

Freedom

• Place trades anytime you like.
• Place trades from anywhere you like.
• Buy and sell whatever you want.
• Nobody to answer to but yourself.
• No experience required.

Time Management
One of the primary benefits of online stock trading is that you can effectively manage your portfolio very efficiently in terms of your time utilization. We're all busy. Why spend hours searching for stocks, when you can do so online in minutes?

Discount Trading
If you are ready to make independent trading decisions without the assistance of a broker, then you may be able to take advantage of discount trading.

• Commission fees from discount online brokers ranging from $3.95/trade to $19.95/trade. This is less expensive than trades you migh execute if you are working with a stock broker that is providing you with advice and making trades for you at your request.
• Beware: There are differences in the requirements for opening a trading account, for the minimum balance in your account, and for maintenance fees. Do some comparison shopping.?

Summary There are many advantages to trading stocks online. . However, independent long-term-investors and short-term-traders must also be honest about their readiness for trading online. There are risks and mistakes in entering a trade can cost the trader a considerable amount of money. Education is critical. If you're unsure of yourself as a new online trader, you might want to open a 'paper trading account' where you can trade online with a practice account where your 'real money' is not at risk.

When you're prepared to trade stocks online, you'll find it to be a very freeing-experience where you can move quickly to take advantage of moves in the market.

I wish you the very best as you proceed with your trading of stocks.

If you're in need of additional training before starting your journey of trading stocks online, I encourage you to spend some time gaining further education at Winning Stock Trading Fundamentals.

America - Are We Hearing Truth Or Are We Getting A Load Of Spin?

As you'll note, I haven't written much on buying stocks online in recent posts. I'll be glad to get to that subject matter. However, I've been temporarily distracted by the lack of honest communication from the press and from officials in Washington. Here's another example found in an article I read earlier today stating that America doesn't have an inflation problem.

This article published by Reuters is titled U.S. Housing Market Improving, Inflation Pressures Muted.. In the article it states "data on Tuesday showed inflation largely under wraps". Who are they kidding?

Consider the following articles:

• Average Price of Ground Beef Hits All-Time High
• 36% Of Americans Haven’t Saved Anything For Retirement
• Study Finds 25% of Troops Use Food Banks
• Hunger in America: 1 in 7 rely on food banks
• Who Uses Food Stamps? Millions of Children
• America's Shameful Poverty Stats

In the last of the above articles it goes on to state the following:

"The current Population Survey data show that 15 percent of Americans, roughly 46.5 million people, live at or below the government-defined poverty line—which, as most who work with the hungry, the homeless, the uninsured, and the underpaid or unemployed know, is itself an inadequate measure of poverty. By more reasonable measures, poverty in this country is even more pervasive.

The headline one can take away from this is that three years into the recovery from the collapse of 2008, poverty numbers haven’t really gone down. Almost all the additional wealth being generated by a growing economy is going to those who already have the most. Median income has stagnated and, for young people, it is continuing to go down."

More articles:

July 2014 CPI, Housing Starts, Real Retail Sales and Earnings, Monetary Base. This article states that:

• Real retail sales contracted for the second month, signaled deepening recession
• Real earnings and retail sales both fell below second quarter levels
• Monetary base explodes to record high (i.e. money printing)
• Quality of housing starts reporting sinks to new low

July Employment and Unemployment, June Construction Spending. This article states the following:

• Minimally weaker than consensus labor numbers
• July Unemployment (The U.S. officially reported unemployment numbers are at 6.2%. A government watchdog ShadowStats reports real unemployment in the U.S. at 23.2%.

• Real construction spending - Stagnation with a recent downside bias
• Economy remains in serious trouble

The website Shadow Government Statistics goes on to express the opinion: that

"The quality of government reporting has deteriorated sharply in the last couple of decades. Reporting problems have included methodological changes to economic reporting that have pushed headline economic and inflation results out of the realm of real-world or common experience."

What Is your opinion on this issue? Post your comments. Speak your mind with dignity and I'll publish it here on this blog.

Should An Individual Investor Consider Investing In Gold?

For years, I’ve been of the opinion that investing a portion of my portfolio in gold and/or silver was a good thing. It’s a subject I haven’t talked about a great deal because the market for gold and silver has been slipping for the past couple of years. I believe that we are seeing the early signs that the bull market for gold and silver investments is about to resume.

If you would like to know more about investing in gold, and the different ways that the individual investor can invest in gold, I encourage you to click on Precious Metals Investments.

The purpose of this article is to capture the thoughts from a number of financial institutions to provide readers with an insight into projections for the price action for gold in the coming months.

Article: Gold Price Forecast For The Next Six Months

This article makes a number of important points that may be a surprise to many investors and traders.

• “Gold is one of the best performing asset classes in 2014, outpacing the stock market by a wide margin. If you watched only the mainstream financial media you would probably be under the impression that stocks have outperformed the ‘barbaric relic’ gold.”
• “The dollar is slowly losing its status of world reserve currency and the petrol dollar reserve is seriously being called into question. A growing list of nations are signing bilateral trade agreements to bypass the dollar, with both China and Russia turning openly hostile towards the dollar in recent months.”
• “The fundamental factors continue to support the argument for higher gold and silver prices.”
• “Note how the 2009-2011 advance of $1,200 was a little more than double the previous advance of $550. If this trend continues, we can expect the next major advance to take the gold price up by $2,400 or more. This would result in a gold price of at least $3,600 during the next up-leg, although it is likely to take between two and four years to reach this level.”
• “Start counting your gold in ounces, not fiat money. And lastly, buckle up as gold comes out of hibernation and begins a major breakout to the upside within the next 6 to 12 months.”

Article: Gold Forecast and Gold Stocks Bottoming Analysis

• “Gold and gold stocks are starting to firm up within their basing patterns”
• “While gold and gold stocks remain in their stage 1 basing pattern, I feel they are a little overextended to the upside and ready for a minor correction.”
• “One thing investors and traders must understand is that the stage I basing pattern can last months if not years at times. Trading during this stage I basing pattern can be very frustrating and volatility of the investment will remain high. This is a time when the investment is being accumulated and distributed by large institutions. This is what causes large percentage price swings within this stage.”

Article: Bank of America Revises Up Its 2014 Gold Price Forecasts

• “The worst may be behind after the sell-off in prices last year.”
• “As investors put less ounces onto the market, purchases from countries including China and India were sufficient to absorb mine and scrap supply.”
• “The bank lists a third-quarter average forecast of $1,300 an ounce, then $1,350 in each of the next two quarters. For now, however, BAMl says “the unfolding normalization of the global macro economy and the implications this has for rates/ inflation should continue to provide some headwinds for gold.”

Article: Why Buy In July?

• “Since the metal is volatile, it’s often very difficult (even for industry insiders, analysts and “experts”) to call gold’s direction in the near-term. There are however, a couple instances where we think discussing monthly patterns can be a very useful tool. The old “buy in July” argument is one of them, considering it has proven true 10 years in a row.”
• “The fact that gold experiences a slow season in the summer is not news. The metals markets tend to cool off and experience very low volume and contract interest in the summer months. Though this can be said about many market sectors, it is especially true for gold. We have seen very low trading activity this month which is quite the norm in July. Come August and September however, the gold market tends to come back to life; often with a vengeance.”

Article: Gold Has Bottomed, The Next Price Target Is $3,600

• “If you think our price targets are bullish, consider that John Williams of Shadowstats.com forecasts that gold needs to climb to nearly $9,000 and silver to over $500 per ounce to match the inflation-adjusted highs attained during 1980 “
• “While gold and silver will be excellent investments and we advocate holding some physical in your possession, the biggest opportunity for gains is with mining stocks. The best in breed companies are now more undervalued than at any point since the start of the bull market or depths of the financial crisis. Sentiment has been extremely bearish, which is precisely when large upside moves historically tend to occur.”

Summary:

I believe that we are seeing the early signs that the bull market for gold and silver investments is about to resume. As you can tell from the above article, there are differences of opinion about what the price of gold will do in 2014 and beyond. Recently I heard that Eric Sprott (a person I consider to be a guru when it comes to investing in gold and silver) believes the price of gold could reach $2,000 per ounce yet in 2014. Most every knowledgeable expert in precious metals believes that gold will reach $2,000 per ounce. They just don't know when.

If you would like to know more about investing in gold, and the different ways that a person can investing in gold, I encourage you to click on Precious Metals Investments.

Inflation Impact On Food Prices

I'd like to call your attention to two articles that will give you insight on the degree to which inflation is making it difficult to make ends meet for the average family in the United States.
.
The first article addresses the impact of inflation on your lunch costs. In particular the cost of ground beef. In the past year, the cost of ground beef burgers has increased over 16%.


The second article indicates that the impact of inflation on your breakfast costs since QE3 (Quantitative Easing 3) have increased by 24%. A breakdown of increased breakfast costs are:

• Cocoa +8%
• Coffee +72%
• Butter +18%
• Wheat +12%
• Milk +21%
• Orange Juice +12%
• Sugar +6%
• Bacon +42%

To read the full articles click on breakfast inflation or burger inflation.


Inflation is not a one-time or a short-term event. It is something we will always live with and it's likely to increase making it more difficult to make ends meet. One of the reasons I invest, is to bring in the extra money I need to pay the bills and to offset the increasing cost of inflation. If you're interested in free educational tutorials that will teach you how to invest to offset the impact of inflation, please click on winning trading fundamentals.

McDonalds - The Golden Arches Provide An Excellent Economic Indicator

As a follow-up to a recent post, consider the following two articles.


McDonalds Provides Proof Of How The U.S. Economy Is Really Doing?
It's time to clear the smoke and forget the comments about seasonal adjustments and stop the rhetoric and lies we get from the administration which focuses on the glowing recovery from the 1%. As for everyone else they can't even afford a dollar meal. The proof? McDonalds same store sales for the last month, July, cratered by 2.5%, far worse than the 1.1% expected and driven by a 7.3% collapse in Asian sales, but the number we focus on, US comp store sales, was a devastating 3.2%, on par with the worst decline in history, and the 9th consecutive month in which McDonalds has not posted an increase in US same store sales. For the full story read McDonalds.


The Rich Get Richer
In a recent Bloomberg article, we learn that a new wealth gap is opening among U.S. corporations. Eighteen American businesses held 36 percent of corporate wealth in 2013, up from 27 percent in 2009, according to a report from Standard & Poor’s, a credit rating firm in New York. The bottom 80 percent have lost ground, with just 11 percent. For the complete article read The Rich Get Richer.

Real Economic Inflation Data The Public Deserves To See

When government officials and economic experts talk as though this country does not have an inflation problem, I don't know whether to laugh or get angry. The average person on the street knows better.


Consider the following data provided by David Stockman's ContraCorner.com website. Here is a sampling of David's data:

1. Barrel of oil in January 2000 was $24.11. By March 2014 the cost rose to $100. That's a 314% increase.
2. Gallon of gas in January 2000 was $1.27. By March 2014 the cost rose to $3.51. That's a 176% increase.
3. One dozen eggs in January 2000 was $0.97. By March 2014 the cost rose to $2.00. that's a 106% increase.
4. Annual healthcare spending per capital in January 2000 was $4,550. By March 2014, the number rose to $9,300. That's a 104% increase.
5. Average monthly rent in January 2000 was $635. By March 2014, the number rose to $890. That's a 40% increase.

I don't see any percentage increases in David's data less than 20%. We need people in Washington, DC that speak truth even when the numbers aren't pretty.


For the complete set of David Stockman's data, I encourage you to go to the following article.

Identify Trends The Easy Way

No matter what your trading style may be and regardless of whether you buy and sell stocks or foreign exchange currencies, you need to know how to identify trends. Identifying trends is often quite easy but sometime the price action makes trend identification difficult. Consider the following tips that may help you in this process.

 

Try the following ways two methods and see which method works best for you..

 

The Conventional Way for Identifying Trends

An upward trend is characterized by higher highs and higher lows. A downward trend is characterized by lower highs and lower lows. An excellent tutorial on determining trends the conventional way is provided in the tutorial Stock Market Trends. I like this approach because it forces me to closely inspect the price action to identify the highs and the lows. With the highs and lows, it’s clear as to when an upward trend or downward trend is present and it’s clear when the trend has terminated. Once a trend terminates, we won’t know what will happen next until we see further price action.

 

The Easy Way To Identify Trends

If you are a short term trader, you could add three short-term moving averages to your chart such as a 5 period moving average, a 15 period moving average, and a 50 period moving average. It’s up to you as to whether you use a simple moving average or an exponential moving average.

If you’re a long term investor you may want to add three longer term moving averages to your chart such as the 20 period moving average, 60 period moving average, and 200 period moving average.

 

In the case of the short term trend trader:

If an upward trend is present, the 5 period moving average will be above the 15 period moving average. The 15 period moving average will be above the 50 period moving average.

 

If a downward trend is present, the 5 period moving average will be below the 15 period moving average. The 15 period moving average will be below the 50 period moving average.

 

The same logic works for a long term investor.

 

If the positional relationship between the moving averages is out-of-sequence, then a trend does not exist. In this case, Trend traders will have to wait until the start of a new trend.

 

If you’re having trouble identifying trends, you might try one of these methods.

Stock Market Decline Coming Soon?

Early this week I wrote in one of my blogs hat the signs are becoming more evident of a coming market correction to the downside. This is a touchy issue because it seems there is always somebody predicting a market decline. However, there have been a growing number of articles in the press this week that support this notion. There have also been a growing number of technical indicators that support this notion. One article that caught my attention I consider to be considerably noteworthy. A link to this article is provide below and worthy of your consideration.


Published today in marketwatch.com article, we read the following excerpts from that article.

“Over the past 45 years, the stock market has lost more than 20% each time three warning signs flashed simultaneously. Mark Cook, a veteran investor who called three previous market crashes, believes the U.S. market is in trouble, to the tune of a 20% pullback.

The signals are excessive levels of bullish enthusiasm; significant overvaluation, based on measures like price/earnings ratios; and extreme divergences in the performances of different market sectors. They have gone off in unison six times since 1970, according to Hayes Martin, president of Market Extremes, an investment consulting firm in New York whose research focus is major market turning points.

A bear market is considered a selloff of at least 20%, with bull markets defined as rallies of at least 20%. No bear market has occurred without these three signs flashing at the same time. Once they do, the average length of time to the beginning of a decline is about one month, according to Martin.

All three of these signals are flashing today.”

Now what? Following are my comments for a bigger picture consideration of the above report.

All stock traders and investors  must be aware that:

• there are risks in the market, all the time,
• there is volatility in the market and it should not be feared, and
• good money management principles must be followed to minimize risk.

A key area of concern is how to minimize losses in the midst of volatility. Keep in mind that volatility is what creates opportunity for investment profits. Four things to do when these potential corrections are evident are:

1. Make sure that there are tight stop losses on each of your investments. This will automatically exit you from a position with minimal loss if the stock starts to decline in price.
2. If you have risky investments, you might want to sell them and look for better opportunities.
3. It’s always good money management to go into a stronger cash position before a pending  correction  takes place.  For some traders this means that 45% to 65% of your portfolio is in cash or money market funds.
4. Hold your cash until after the market decline. Once the market decline has taken place, you have an excellent opportunity to make excellent profits as the market returns to a higher more profitable position.

Look at a potential bear market with those four recommendations in mind and you’ll come out the other end with a much stronger portfolio.

Stock Buying Success Requires Sticking to the Fundamentals

When Traders find that their results aren’t measuring up to their expectations, sometimes the answer can be found by going back to the basics. Two terms that Stock Traders  and Forex Traders should never lose track of is ‘support’ and ‘resistance’.

It’s so tempting to look at a chart of share price and see the potential in how far a trend might go and how much profit the Trader might make. However, a quick look at support and resistance might shed new light on the subject. In this post I’m going to differentiate strong resistance from moderate resistance and strong support from moderate support. You may have never heard of support and resistance in terms of moderate or strong. So this information may be helpful to you.

Support

With an upward-trending share price action, as shown in the figure below, we look for support under the price action.  Notice two important factors:

1.      The price action bounced off the support lines at least five times.

2.      The price action lasted for almost three years (the space between each vertical line is 3 months).



Strong support will exhibit more than 3 bounces off the support line and last for a period of 3 or more weeks.  Without a doubt, the price action above demonstrates strong support.

Moderate support is represented by 3 touches of the resistance line over a period of 2 to 3 weeks. If it’s less than 3 touches, or less than 2 weeks, I wouldn’t call it a valid support. However, this is my preference. As a Trader you must use your own judgment as to whether it’s support or not.

Caution: Some Traders insist that the price touch the line, not fall short, and not go beyond. Don’t be too picky about this. If it’s close, we’ll call it a touch. Also note, each candle that touches the support line is considered a touch.

Resistance

With an down-trending price action, as shown in the figure below, we look for resistance above the price action.  Notice two important factors:

1.      The price action bounced off the resistance line at least five times.

2.      The price action lasted for almost two years (the space between each vertical line is 3 months).

Strong resistance will exhibit more than 3 bounces off the resistance line over a period of 3 or more weeks. Without a doubt, the price action above demonstrates strong resistance.

Moderate resistance is represented by 3 touches of the resistance line over a period of 2 to 3 weeks. If it’s less than 3 touches, or less than 2 weeks, I would hesitate in calling it a valid resistance. However, this is my preference. As a Trader you must use your own judgment as to whether it’s resistance or not.

Caution: Some Traders insist that the price touch the line, not fall short, and not go beyond. Don’t be too picky about this. If it’s close, we’ll call it a touch.  Also note, each candle that touches the resistance line is considered a touch.

Why Is the Strength Important?

The strength of the support and resistance is important because the stronger the support, or the stronger the resistance, the more you as the Trader can trust it when setting your stop loss and take profit levels in your trade.

When Resistance Becomes Support

When price action makes a legitimate and sustained move above resistance, the resistance line becomes the new support line. Likewise, when price action makes a legitimate and sustained move below support, the support line becomes the new resistance line.

I made reference above to a ‘legitimate and sustained move’.  Often the price action will move above resistance, or below support, but the move is very temporary and will correct itself within 2 or 3 candles. So be aware that the move above resistance or below support could be a ‘false breakout’.

For more information on these topics, click on support or click on resistance.