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Why Trend Followers Mint Money ?

  
  Education
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The reason trend traders make money in the long term is because due to supply and demand and the flow of capital equities, currencies, commodities, and future contracts tend to trend in one direction or the other in different time frames, trend traders and trend followers are there to capitalize on those trends by letting the market action determine their buy and sell decisions seeking to be on the right side of the market’s trend the majority of the time.
Here is why it works:

  1. Bear markets have no supports, they keep falling until a new support level is found.
  2. Bull markets have no resistance, they keep keep going up until a new resistance level is found.
  3. The world’s capital is always flowing and seeking to find returns; this flow causes trends to emerge.
  4. Monster stocks can double due to earnings growth expectations.
  5. Currencies can plunge based on fear of a nations solvency.
  6. Commodities can run to absurd levels based on supply expectations.
  7. Fear can bring markets down far below what any one thinks is rational.
  8. Greed can inflate markets up far above any reasonable valuations.
  9. Trend traders are not predicting price action they are simply following it. They let reality guide them not opinions.
  10. Markets tend to trend and systems that are able to capture trends and minimize losses in choppy environments are robust in the long term.

Technical Confirmations Explained

  
  Education
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Confirmation is necessary to validate a break of important support and resistance levels such as price patterns, moving averages and trend lines. Technicians and traders define Confirmation in various ways. While market situations vary, below is a guideline of three forms of Confirmation:

  • Percentage Confirmation: Confirmation is present when there is a 3% or greater break of a support or resistance level. Volume attached to the break, while not necessary, lends confidence to the confirmation. The 3% rule is commonly used by long term traders and investors. Short term traders use a lesser requirement to complement trading objectives, keeping risk/reward in line.
  • Time Confirmation: If there are at least three closes above or below a resistance or support level, then confirmation exists. A close varies based on ones trading time frame. Again, volume attached to the break adds significance to the confirmation. (We always write Three Consecutive close +Weekly close must for major upmove or down move )
  • Heavy Volume Confirmation: Volume confirmation presents when there is a substantial surge in volume relative to recent volume, combined with one close above or below a resistance or support level.
  • Combination: If percentage and time confirmations fall short of the minimum requirement, yet are accompanied by substantial volume (e.g. 1.5% close above resistance with substantial volume), that could be accepted as confirmation.

Traders can use this guideline to develop their own requirements for confirmation as individual investment objectives and time frames vary.

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