In Part I of our best online trading series on Will the trend continue or stop we talked about how two tools are needed to measure a trend’s strength, which will help you figure out if a trend is going to stop or continue . Tool number one was setting targets properly according to support and resistance’s structure .
Momentum tools are the second type of tool needed . You should use momentum tools to make the right judgements and apply them to a timeframe that is smaller than the one you are trading … basically if a daily chart is the way you’re trading , trying to pick of the high or low of the day with your trades , then for support for the intraday trading decisions you’d be looking at half hour or hourly charts .
What are these types of tools ? one of the best is a short term moving average ; three moving averages should be used within a channel system and you will have created a matrix against which you can measure the strength and robustness of a trend . There are many channel systems but one of the best is the Drummond Geometry system (you should have learned this in your best online trading) which as the center line uses a moving average that is short term of the average of the close, high, and low of the last bars that have been completed , projected to a future bar. Then two channel bands are added to this based upon averages that are similarly managed on the previous three pivot points . Judgments that are very effective of the strenght of the market can be made by looking in relationship to this channel system at where sequential closes occur.
You should also establish market "flow" by taking measurements using different price strength aspects, such as how close to the high or low the close of the bar is , the distance between close and open , how small or large the bar range is, and the progress that the bar is making through the matrix of resistance and support you have.
Yet another tip to remember: Because each time-frame has its own system of support and resistance , watch the difficulty or ease of in a trend the lowest timeframe monitor breaks its own support or resistance. The more easily you see this happen , the more robust the underlying trend is likely to be . Within an uptrend , support close to the low of the bar is going to hold , and near by resistance will more easily and more often break . Resistance breaking and support holding in a lower time period- this is a sign that is reliable showing the strength of the trend.
These tips should help your stock trading strategy become a consistent winner as you learn how to know when trends are running out of stream and those that may go on for days, weeks, or months . A quality course on technical analysis training can save both time and money for you by giving you the right tools to make the distinctions that are so important.
