Managing Your Money

Understand How To Find The Trend And Make Trading Easier

An odd thing happens if you put up a stock price chart and ask a bunch of people what the trend is.  Even when its completely obvious to someone like me, as in not any question at all, you will still get many different answers based on the exact same chart.This results from people not knowing how to find a trend on a price chart with any speed or accuracy.  It is actually quite simple, and is a key thing to know if you want to learn to trade.

The first thing to do is to size the chart properly.  There is no point of putting up 5 years of data if you are looking for a daytrade to hold for 5 minutes - that is completely pointless.  So here is a guide for what you need as far as time loaded on a chart:

Daytrade:

1. 1 min chart:  Have at least 2 hours of data (120 bars) on the screen but no more than 6 hours (1 full day).
2. 2 to 5 min chart: Make sure you have at least 3 hours of data up, but no more than 2 days.
3. 10-15 min chart:  Have at least 3 days of data up, but no more than 1 week.

Swing Trades (longer term hold) you will want a 10 to 30 minute chart up and you will want at least 10 days of data up on the screen.

As soon as you have the chart data up on your screen, change the bar type to a "bar chart" style.  This is easier to see the trend.Start by looking for every V bottom area.Any time there is an established low with a V bounce, you need to make a note of it.  In addition, look for / top areas where it spikes up then sells off.Focus in on the major ones where it moves significantly away from that area in a short period of time.  Next, get your drawing tool and connect the V to each other V.Connect the / to each other /.  Connect the low of the V, the highs of the /.  Again, this is a key to learn how to trade.

Lines that slope from the lower left up to the right means the stock is in an uptrend.  Lines that slope from the upper left down to the right means the stock is in a downtrend.Another easy method: Go to the first bar on the left, and then to the very last price on the right hand side.Draw a straight line going in between the two.  If the line is sloping up - its an uptrend.  If the line is sloping down, its a downtrend.Another key aspect to notice is the oscillations around a central trendline.  Does it go +/- 2pts, +/- 1pt, +/- .50 etc - remember, all that is needed is a rough average, not an exact number.This gives you a decent sense of the trend strength.  The lower the oscillation, the stronger the trend.  The theory here is the buyers (in an uptrend) or the sellers (in a downtrend) are so strong that it hardly budges against the buying or selling.

Another thing to keep in mind the more you practice, the faster it gets - the lines are no longer necessary.I can glance at a chart and know the trend and approximate strength within seconds.Additionally, you really need to know the trend direction and strength on the next higher timeframe than you are trading on.One example would be on a 5 minute chart the stock is in an uptrend, while on a longer view (15,30 min) its actually in a downtrend.  This needs to be paid attention to, because the longer term trend can push the shorter term trend back into a downtrend.  In general, you want a higher term chart to be a multiple of 3 vs the chart you are trading.So the way it works is if on a 1 min chart, you also want to look at a 3 minute chart - if you are using a 5 minute chart, you want to look at a 15 min chart also.  Once you can easily tell the trend of any chart, other aspects of learning to trade become much easier.

 

 

 

 

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