Ways to Build and Deploy Trend Trading Systems
When the price of an asset increases or decreases steadily, it gives rise to a trend. Leveraging these movements of an asset’s value and selling or buying stocks as the market shifts to make a profit is called trend trading. Being in trend is not everyone’s cup of tea, but for generating wealth from stock trading, trend trading is your best bet. To understand trend trading, let’s go back to its roots. In 1932 Charles Dow proposed the existence of trends in the stock market, and that markets move according to trends.
According to Dow’s theory –
- The market discounts everything.
This principle states that everything you need to know about a stock is reflected in its price.
- The market has three trends.
They are primary, secondary and minor. They are classified depending on their timelines and the direction of the slope. Primary trends last for years, while secondary trends last for months or a few weeks. Primary and secondary trends also differ in directions. For example, if the primary trend is upward, the secondary trend has to be a downward slope and vice versa. Minor trends are daily fluctuations occurring in the market, lasting for a very short duration, typically a week or two. The minor trend always goes against the secondary trend in terms of direction.
- The three trends have three phases.
The market follows a bullish or bearish trend. Each having 3 phases, accumulation, distribution, and excess (for bullish market) or panic phase (for bearish markets)
- Indices confirm each other.
When taking multiples indices into account, a trend is confirmed only when all of them agree.
- Volume confirms the trend.
Simply put, the volume and the primary trend must move in parallel. In the case of a bullish market, the volume should rise as the prize shoots up and decrease during secondary pullbacks.
- Trends continue until the definitive signals change.
Sometimes reversal of primary trends can occur, but Dow argues that they revert to their tendencies. Determining whether a reversal is temporary or a secondary trend is the tricky part of trend trading that can be easily addressed using trading systems.
Benefit from market trends using trading systems
Trend trading requires very little of your time and knowledge; unlike other forms of trading, it doesn’t require prior knowledge of technical or fundamental analysis for you to trade and make money because you are not trying to predict the market. Instead, in trend trading, we stay a step behind the market, thus reducing risks by a landslide.
While building your trading strategy, be sure to check for the following –
- The ability to identify a trend.
- A low-risk entry point
- A stop-loss order to reduce risks
- An exit rule to be used when the trend shifts
Before deploying a system, it is crucial to learn its ins and outs. Then proceed to backtest these using previous years’ charts and trading trends. This helps you gauge the pros and cons of the system and make necessary tweaks to suit the present market conditions and your trading goals. Retest the strategy, and if you achieve the desired results, voila. Follow the system without worry.
To get you started on trend trading here’s a straightforward and proven trend trading system used at Trade2Transform.
20 Akasha and Bhumi Trend Trading System
Trade confidently without predictions, analysis, or long hours before the screen. Fifteen minutes of your time is all it takes to deploy some of the most effective and wealth accumulating trend trading systems. Do not let the usage ‘systems’ scare you; all you need to get started is a technical chart with candlesticks, and you are good to go. You can trade from your mobile or a laptop from any place of your convenience.
Setting the timeframe to 1 day or one week. To leverage the human psychology of wanting to begin anew every month, we use a moving averages period of 20 days on the charts and trade following these rules-
- Buy when the price breaks the 20 Moving Average
- Exit long if the candle goes down and breaches the 20 Moving Average
- Sell below the crossing candle if the prize breaches the 20 Moving Average
- Exit short when the price closes above the 20 Moving Average
The system demands very little time for execution and management. Unlike the popular representation of stock traders glued to their screens and waiting for market fluctuations, trend traders with robust systems in place have no use for news reports, trading tips or market reports. The system takes the heavy lifting off of your shoulders. With the 20 Akasha and Bhumi trend trading system you can trade effortlessly. To learn more about trend trading systems, join our Ride the Trend program. Equip yourself with the most effective systems and tools that help you master trend trading and earn your profits.