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Learn Strategies of Trading With Trend Explained With Example

Duration of Trends There is no minimum or maximum period to make a trend. The period could be a trend in minute charts for an intraday trader called micro trend to a few days trend called intermediate trend to a super trend spanning over years. More than the duration of the trend, it is important to know the factors hinting a trend and its validity.

For short term trader they use shorter trend-line / moving average while long term traders use a longer duration one or even monthly charts. Whichever is chosen, if used correctly will give good results.

Trading strategies With Trend As important as to find trend and trade, it is equally important to determine trade target and exit points and risk mitigation strategies. We strongly recommend using stop loss at all times irrespective of the reliability of trend finder. Before entering the trade, have a plan. Starting with short term, then on convenience moving with a longer term is a bad strategy. Majority of losses happens because of no plan.

Once trend is established then depending on the indicators one of the following strategies may be used

1.Breakout from previous highs In this case there is no immediate known support/resistance. Price can continue to make a new high/low. In such case it is advisable to play with trailing stop loss. Some projection of target can be made using Fibonacci levels.

Example of Breakout From Previous High Formed By Nifty

2. Moving Average crossover If trend is established by moving average crossover, then trend keep in the stock till a reverse moving average crossover happens. However, if moving average tends to get flatter, then it's time to move out of the trade. Trading with MA or MACD, make a rule to respect the signals provided by it.

Example of Moving Average Crossover(Uptrend) Formed By State Bank Of India Ltd.

Example of Moving Average Crossover(Downtrend) Formed By State Bank Of India Ltd.

3. Break out of trading zone. When the trading with such breakout, it is advisable to start with a stop loss at 5% of the range below the breakout level. Target in such case could be the depth of the trading range. However if other factors are supportive, then you may apply trailing stop loss but we recommend to book partial profit.

Example of Breakout of Trading Zone Formed By Yahoo Inc.

4. Continuation Pattern In case of continuation pattern, trader can be little relaxed on stop loss and expect to make bigger profit. But it is still advisable to make partial profit as first weakening signal.

Example of Continuation Pattern Formed By Axis Bank Ltd

Example of Continuation Pattern Formed By BOSCH Ltd

5. Trading in pullback No stock continuous moves in one direction. There are several pullbacks at important resistance/support levels, Moving averages and Fibonacci retracement level. This may provide you with more point to trade but be extremely sure of what you are doing. First of all, since trend is on, pullback/counter trend is shorter and profit is limited and moreover sudden strengthening of parent trend can incur you severe losses. This strategy is for professional traders.

Example of Pullback Shown By CNX Nifty.

6. Observe Volume at all times Volume denotes market participation or in general conviction of trend. If at any time there is sign of distribution or other divergence, immediately book partial profit and tighten stop loss. It is better to hit stop loss and reenter on positive signal than to get all profits wiped off.

Example of Volume In Trends Formed By Apollo Tyres Ltd.

This contains some of the trading strategies. We are coming soon with a separate section of trading strategies.

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