Why Trading Trending Stocks is Smart

If you are going to make a go of it in trading the you have to be consistent.  Traders that are able to identify trends consistently and trade them properly are usually the traders that do very well. But you are probably wondering what is a trend?

In the last lessons I talked about two areas the markup/uptrend and the markdown/downtrend

Its pretty simple to pick these trends out.  An uptrend is defined by Higher Highs (HH) and Higher Lows (HL) and will create a series of troughs.  A downtrend is the opposite Lower Highs (LH) and Lower Lows (LL) this will create a series of lower peaks.

Below is a pretty good graphic representation of each



The thing to remember about trends is that stocks do not trend all of the time. Generally less than 25% of the time a market or a stock will trend.  The rest of the time stocks will go sideways.



As you can see from the above it is really difficult to pick out a trend its just going sideways.  Traders that try to pick bottoms and tops can get burned in these type of moves.  These choppy sideways action usually occurs during accumulation or distribution.

Here is a stock that is trending,



Here is a stock that is not,



Its pretty easy to see that the trading with a trend is much easier.  I have had number of people tell me I am going to buy such and such company.  I look at the chart and I'm like, "Are you kidding me this is dropping like a rock."  Their answer always has to do with its either fundamentally sound or this analyst says its a good buy.  Good luck with that.

Any stock that is in an uptrend the pullbacks are short lived and offer a good time to get in before the trend is resumed.  The same goes with a downtrend the rallies are short lived and its a good place to get in before it falls more.