3. Trend Direction

Trade only in the direction of the trend:

Use a trend indicator to identify whether the security is trending or ranging. Only take signals if the security is trending upwards.

Example

Charles Schwab is charted with 7-day and 150-day exponential moving averages, used to track the primary trend.

By October 23rd, when the market signals an up-trend [M], the stock is trending strongly upwards:

• The fast MA crosses above the slow MA at [T]; and
• The slow MA slopes upwards.

This is also evident from the successively higher peaks and troughs on the secondary cycle and the new High reached on October 20th.

[ Back ] [ Next ]

Subscribe to our FREE trading newsletters The weekly Trading Diary offers free multiple time frame analysis of major market indices, identifying key support and resistance levels and suitable trading strategies. More than 70,000 subscribers - Read it now The monthly Trading Updates newsletter provides new articles on Trading Strategy, Trading Psychology, Money Management, Tricks of the Trade, New Indicators and the Economy. More than 90,000 subscribers - Read it now To subscribe, check the applicable checkboxes, enter your email address in the above field and click the Subscribe button. Subscribers are protected by our Privacy Policy.