Trade The Trend

Learn To Trade Stock Profitably!

Trade the trend is THE most important rule in stock trading.

Nevertheless, it is often overlooked by beginners. It's one of the reasons people make so many losing trades when they first learn to trade stock.

If you hope to make money consistently in this game you

must learn to tell which way a particular stock and the market in general is trending.

This is based on the fact that an object in motion tends to continue in the direction it's headed in. When stocks are headed up, they tend to go higher. When prices are falling, they tend to go lower.

The trend is nothing more than the direction of the stock or market. You find out which way the market is trending by looking at a stock chart.

If you don't yet have an online trading account there are several websites where you can access free stock charts. Pull up a chart of the S&P (SPX) and configure it to show simple moving averages.

You should now have a chart with four lines on it. One represents the movement of the S&P. The other three are the 21, 50 and 200 day moving averages.

A simple moving average is just a smoothed out stock price history. It's a technical analysis indicator commonly used by traders.

The faster (21 day) moving average shows you the direction the market is headed in right now.

The slower (200 day) moving average shows price direction over the past several months.

Moving averages are also important because they often serve as support or resistance levels.

Only Trade When The Market Is In An Uptrend

Before I take a trade, I pull up a chart of the S&P (you could use the Dow if you like) and check the moving averages. If the market is trading above the trend line but not too far above it, I consider it to be safe to enter a trade.

If the market has fallen below the trend line I will stand aside until it goes back into an uptrend.

I apply this rule to individual equities as well and refrain from putting on new positions when they have fallen below the trend line.

You can make lots of money online trading if you remember to trade the trend!

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