Chapter 6

Trend Following or Trading Ranges

IN THIS CHAPTER

Bullet Understanding the differences between trading trends and ranges

Bullet Making the most of a strong trend

Bullet Working with an identified trading range

Bullet Conducting intermarket and relative strength analysis

Most swing traders make their money in one of three ways: trading strong trends, trading ranges, or both. A trend is the persistent up or down movement of a security’s price. Trends can last anywhere from a few days to a few years, but generally, a security must rise to new highs or fall to new lows every few weeks to be considered trending (for a swing trader, that is; long-term investors define trends in a different time frame). If you choose to accept trading trends, your job is to find the strongest uptrends and ride them until you exit for a profit or are forced out for a loss (a small one, hopefully!).

Many markets and securities are neither trending upward nor downward, though. Instead, they’re oscillating up and down between clearly defined price levels called support and resistance, resulting in a trading range. As with trends, ...

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