Market Stock Trading Trend
Even when the market is not showing any long term or medium term trend, that is when the market is not trending, you will find smaller trends in the short term. Basically these trends are due to Wave nature of the market movement and can be profited from in near term trading. Let us first understand few basic principles of Market Stock Trading Trends :-
- Any market movement will take place in the form of Waves.
- These waves move up in five steps in Bull Run, and conversely move down in five steps in Bear Run.
- Movement of waves in five steps upwards means that the first step will go up, second step will come down but not below the low of first step, third step will go up higher than the high of first step, fourth step will come down but not lower than the high of first step and fifth step will either go higher than third step high or equal to that high.
- This means that for a market trending upwards, there will be three steps taking prices upwards and there will be two steps taking prices lower. Same will be the opposite case for markets trending lower.
- The three steps which take the prices upwards will again move in five-step waves, and the two steps taking prices lower will move down with three-step waves.
- See the daily chart of a stock and try and identify whether the short term trend is up or down.
- If it is up then identify whether the third step of the wave has started or not.
- Catch the third step of the wave as it begins and buy the stock. Remember the third step of the wave is generally the most profitable with minimum risk. This step will take the prices higher than the high of first step as discussed earlier.
- As the prices go higher than the high of first step, keep a trailing stop loss and go with the price movement. As the price moves higher, move your trailing stop loss higher, till you are stopped out. This your your exit.
- Since you are looking for very short term profit, trade with stock futures so that you can get a leveraged profit, which can be substantial. In terms of Return on Investment, your profit should be averaging 25% in 4/5 trading sessions.