Chapter 10. Following Trends for Fun and Profit
In This Chapter
Spotting uptrends and downtrends
Finding areas of support and resistance within a trend
Identifying gaps
Understanding continuation and retracement patterns
Planning for failed trading signals
Technical analysis helps you identify new price trends and look for endings to existing trends. Being able to identify those two extreme end points means you can develop a powerful, profitable trend-following trading system. Technical analysis can also help you evaluate the persistence of a trend, which is useful for finding secondary entry points and generating short-term trading signals.
In this chapter, we discuss trading strategies for several trend-following techniques. In addition, methods for identifying continuation patterns, retracement patterns, and reversal patterns are discussed, together with strategies for dealing with the inevitable failed trading signal.
Identifying Trends
Identifying a trend is relatively straightforward. Instinctively, you know it when you see it. Visual techniques and calculated indicators both can be used to identify trend signals. We discuss visual identification techniques in this chapter. We cover calculated indicators in Chapter 11.
A steadily rising or falling stock is a trending stock. But if you watch stocks for any period of time, you know that they rarely go straight up or down. Instead, you see a stair-step effect in which a stock rises several steps and then falls back. Talking about a trend ...
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