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Learn to avoid Common mistakes by trader during trend trading

1. Forceful identification of trends. Out of sheer enthusiasm or trading pressure, novice analyst tries to impose a trend when it does not exist or is not decisive.

2. Switching tools of trend finding. As we have seen that tools of trends are trend-line, moving average etc. At times, traders conveniently try to switch between them, in some case it may work, but it is not advisable as different tools measure different aspect of trend. Most common mistakes traders do is to conveniently look for longer Moving average when shorter one is broken despite a short term trade plan.

3. Not playing with stop loss Market at times take some news or changing market conditions too seriously, and a sudden violent trend reversal takes place which at time wipes out all profit or may even incur loss.

4. Limited profit taking. As we have learnt the, stocks tend to move in trend and in lot of case it could be a long trend ranging from few days to few years. Depending on trader's profile, traders can make huge profit when trading with trend rather than a fixed limited percentage of profit. Trailing stop loss is advisable with trend trading.

5. Ignoring crucial overbought/oversold levels. Extreme overbought and oversold levels can be identified using oscillators like RSI, Williams's %R etc.

6. Fail to sense weakening trend strength. Any trend once started it ends at some point. There are indicators like ADX to measure trend strength. A trend is strong as long as there is enough conviction by majority of market players. This can be measured using volume along with the price. Other than raw identification of volume, there are some well-established indicators like ADI, Chaikin Money Flow(CMF), MFI which combines price and volume and gives indication of mass participation.

7. Trading with counter trends. As illustrated in complex trend scenario, an ascending channel may give lot of resistance points but since general trend is upwards, profit potential of such short is much lower and thus risk reward ratio unfavorable.

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