To consistently make money in the stock market, you should only trade stock trends! Following are the characteristics that make up a trend.
Remember when we talked about stock market stages?
Well Stage 2 is an uptrend that is characterized by a series of higher highs (HH) and higher lows (HL).
Stage 4 is a downtrend that is characterized by a series of lower highs (LH) and lower lows (LL).
This creates a series of peaks and troughs on the chart that you can trade quite successfully.
Below is the the beautiful anatomy of stock trends:
Stocks Trends Vs. Trading Ranges
It is estimated that stocks only trend about 30% of the time. The rest of the time they move sideways in trading ranges.
This is what a trading range looks like:
Yes, trading ranges can get that sloppy! There is absolutely no reason to trade stocks that are chopping around like that when you can trade stocks that are in the trending phases. Trying to trade stocks in trading ranges (stage 1 and stage 3) is a great way to chew up your trading capital. Stick with trends!
Here are some examples:
TRENDING STOCK
STOCK IN A TRADING RANGE
I know all of this may seem pretty basic but this is what it is. As simple as that.
It just doesn't make sense to trade against the trend and in trading or ranging stocks.
If you look at any stock on a chart that is in a strong uptrend, you will find that the pullbacks are short lived. This gives you a excellent opportunity to buy the stock before it resumes the uptrend.
Same thing with stocks in downtrends. The rallies are short lived which gives you an excellent opportunity to short them.
