New Trader,Rich Trader 2: Good Trades, Bad Trades pdfdrive com

Chapter 11
A good trade is made after identifying and trading with the trend;
a bad trade fights the trend.
“The answer to the question, ‘What’s the trend?’ is the question,
‘What’s your timeframe?”
– Richard Weissman
“I know that trading following a trend is where the money is made and that is
how I try to trade, but how do you identify the trend?” New Trader asked one
sunny afternoon as he sat on Rich Trader’s patio.
“Well, it depends. The first thing the trend depends on is your timeframe. A
long-term trend following trader may be long based on the weekly or monthly
chart, while a day trader may be short based on the intra-day 15 minute chart.
Both make money in their position when they exit. The key is looking at the
direction of the price in your timeframe. Examine and quantify support and
resistance levels along with moving averages. Some traders also use Elliott
Waves and Fibonacci price levels.”
“There are many ways to measure the path of least resistance,” Rich Trader
said as he led the younger trader to his office and sat at his computer, pulling up
daily charts from his favorite website.
Moving averages are one way to quantify where the current price is in
relation to an average of prices over a specific timeframe. If the current
day’s price is over the 5-day moving average, it could be said to be in an
uptrend in that timeframe on the daily chart.

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Chart courtesy of StockCharts.com
With higher highs and higher lows over a time frame it could be said that
the market is in an uptrend.
Chart courtesy of StockCharts.com

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Lower highs and lower lows are an indication of a down trend.
Chart courtesy of StockCharts.com
A break out of a trading range with a new price above or below the
established range of support and resistance can also be a signal and indicate
a new trend emerging out of a price consolidation period. A break down out
of a trading range that makes a new low means that buyers are no longer
willing to pay the asking price of support and that sellers are willing to sell
for less than support in that timeframe.

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