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Trading Tools and Tactics: Reading the Mind of the Market by Greg Capra

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Chapter 10

The Trend Is Your Friend

There Are Only Three Directions

There are many clichés you may hear when you enter the world of trading or investing. Many of these clichés make for very cute sayings but are often bad advice. However, some sayings, such as “the trend is your friend,” are extremely accurate and good words to live by. The only problem is, the cliché does not come with instructions on exactly how to do it.

In reality, there are only three possible trends. This is because there are only three possible directions that prices can move. Prices can move up, they can move down, or they can move sideways. When any one of these trends is forming a tight quality pattern, it is very easy to identify the trend. However, sometimes the pattern can become so loose or whippy that they can become so hard to identify that traders tend to say that the price pattern is trendless. In reality, there is always a trend occurring in some time frame. Whether or not you want to take all of the extremely whippy trends and call them trendless or not is really a moot point. We only want to focus on the quality trends that are easily identified as going up, down or sideways.

It may seem like common sense to be following the trend. Most traders however, do not appreciate the absolute beauty that comes from following the trend. In a sense, it is one of the only times that we truly have an edge on the market. Therefore, it must be followed accurately and wisely. The problem is; what trend should ...

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