Trend Trading made easy

By: albi000
Trend following is a popular trading system. The method involves joining an established trend with an aim to ride the stock in the direction it's heading and exiting when the trend reverses. A trend trader is either right or wrong and will never hold a position in hope the knife stops falling. The system requires string self discipline to follow the precise signals the system is created on.

There are many methods for establishing if a stock is in a trend. The quickest method I have found is using the Guppy Multiple Moving Averages (GMMA). The GMMA indicator consists of 2 groups of EMA's. The first group known as the 'short term' group consist of 3, 5, 8, 10, 12 and 15 day EMA's. The second group consist of 30, 35, 40, 45, 50 and 60 day EMA's. The two groups are usually colored differently to allow a quick scan of the chart to determine if the short term group is outperforming the long term. The GMMA is an easy to create indicator, that quickly enables the trader is the stock is a potential trade.

Trend Trading is a trading strategy that relies heavily on defining risk. The major contributor for success is not just sourcing a trend but managing entry and exit. They have clear trading rules to cut their losses before they turn into large losses, while allowing their profitable trades to run. This strategy cuts positions quickly, forcing the bulk of the profits to be made from a handful of successful trades. The success of trend trading isnÃ??Ã???Ã???t the win-loss ratio, but the profits obtained from the winning positions. It is important that the system then defines a tight stop loss, with enough space to allow the stock to continue with its trend and not stopping the trader out before the trend resumes.

The easiest, most effective and relied upon method risk management method is the 2% rule. The aim of this risk management technique is to define an amount that the trader is willing to loose on each individual trade. The 2% rule calculates this value at 2% of the value of the portfolio. The value of portfolio is calculated by adding the value held in cash, with the current value of all open trades. This value is then multiplied by 2% to calculate the amount the trader should risk. Based on this value, entry price and stop loss price the trader can then calculate how many shares to buy to risk only 2% of their account.

For more information on trend trading, technical analysis or risk management, please visit Market Ninja.
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