Trend – The Key to Profitability

Published by Sharekhan Education | July 27, 2022

By Ankit Saxena | Sharekhan Education

Trend – The Key to Profitability

The sole purpose of stock market traders is to maximize profit with the least amount of capital risk, and technical analysis is an effective way to generate profit and manage risk.

Below are the three basic steps to profiting from stocks:

1) When the trend starts, identify it at the earliest time and price with the least risk of error.

2) Choose and enter a trend position that corresponds to the current trend, regardless of direction (that is, trade with the trend – long in an uptrend and short or square-off in a downtrend).

3) Exit the position after the trend ends.

Implementation of Trends:

Trends seem to be a very simple concept, but when it comes to the implementation part, it is equally complex, especially identifying trends and trend reversals, which is a subjective decision that depends on one’s skills, experience, and ability to manage emotions. Money lost by traders due to wrong decisions and incorrect and unorganized knowledge is the most expensive in the world.

Determination of the direction of price:

A trend determines the direction of the price. When referring to a trend, a rise or fall in price is described as a directional movement that can only be profited from by following the trend. A sideways trend is called a trading range or neutral zone. Trends are fractals and represent price behaviour regardless of time.

For example, a minute-to-minute trend will behave like a daily trend with only slight differences due to obvious changes in liquidity in a short period. The nature of the trend tends to continue rather than reverse. A trend can never be a straight line upwards. However, within the rising trend, there are many smaller trends, both up and down, and if we look more closely, there are even smaller ups and downtrends.

The larger trend will impact the smaller trend, so be aware of the longer and shorter trend directions. Also, the short-term trend reverses before the medium-term trend, and the medium-term trend reverses before the long-term trend.

Identifying Trends:

The simplest way to look at prices and identify trends is to look for peaks and troughs between price swings. If the peak is higher than the previous peak and the trough is higher than the previous trough, the trend should be upward. If the peaks and troughs are lower than before, the trend should be downward. If the peaks and troughs are scattered, the trend cannot be identified. If the peaks and troughs occur at the same level, the trend should be a trading range.

This was about Trends. For a better understanding and learning of other trading concepts, you need to enroll in our courses. Visit our website or attend a Free Workshop to know more about our courses.

By enrolling in this stock market course, you can learn the various aspects of trading in Futures and Options .