10 Ways to Follow the Trend in the Stock Market
Trend followers do not tend to buy the market right at the bottom and sell at the top.
Instead, they buy in the market when it goes up and sell when it goes down. Or another explanation, they sell when the market goes down and buy when the market goes up.
Thus, they catch the wave of traffic and earn money quantum code.
How to follow the trend?
A common mistake that some traders make is trying to develop an elaborate method or system for following a trend. The truth is that there are many ways to find trends, and simple methods are just as good as complex ones.
When you think about it, the idea of trend following itself is a pretty abstract thing that depends on the time frame you are looking at.
In reality, the market can easily go up on a monthly timeframe and go down on an hourly timeframe.
How to define a trend?
You could say that a trend is just the general direction of something. And partly because of this vague definition, other factors such as market timeframe and portfolio diversification take on additional importance.
Therefore, the most important thing is to find really big trends, big enough, often enough to make good money ...
If the stock goes higher and higher, then almost every trend indicator will point to an uptrend.
Therefore, it is not so important which indicator you choose.It is important to find a trend following an indicator that will work for you and the trend by following your rules and sticking to them.
So now we have established the importance of finding big and reliable trends, here are 10 different and new ways to follow the trend.
In addition to simply describing these methods, I will analyze the market and provide the signals provided by each method.
My guess is that good trends are not that simple, so a trend with fewer signals should be more reliable than methods with more signals.
10 ways to follow the trend
The examples given here will focus on finding uptrends, but the same process can be used to find downtrends.
# 1. 52 Week High/Low
It's reasonable to conclude that if the stock market hits a new 52-week high, that would be a pretty strong uptrend. Similarly, if it just hit a new 52-week low, it will have a strong downtrend.
This is the basis of many successful trend following techniques.
Let's look at the following two stocks, both of which have just made new 52-week highs:
You can see that the first stock was gradually rising while the second was in a range before a big move caused it to break its 52-week high.
For trend followers, the first stock should provide more reliable returns than the second, although a trader can never be 100% sure that the trend will be the smoothest.Browsing the database of S&P 1500 stocks during the week of January 5, 2015 resulted in 33 companies hitting 52-week highs.
#2. Moving Average Crossing
Another common trend indicator is the MA crossover, as it objectively shows when the market is starting to move up or down gradually.
Based on these considerations, when a moving average such as the 50-day MA crosses over a slow moving average such as the 200-day MA, it is reasonable to conclude that the uptrend is gaining momentum.
This is shown in the following chart for $HWAY Healthways Inc. stock:
The 50-day MA is blue and the 200 MA is orange. You can see that the upward trend is already developing.
A database scan of the S&P 1500 stocks for the week of January 5, 2015 resulted in 11 stocks making a bullish crossover of the 50/200 MA.
It's not much, but there were some stocks that didn't look like they were in an uptrend at all to the naked eye. This is the advantage of using a moving average crossover.
#3 Use RSI
The Relative Strength Index is an oversold/overbought oscillator most commonly used as a mean reversion indicator. But in this case, we can use it as a trend following indicator.