- Posted by Raghee Horner on February 4th, 2014 at 1:44 pm
Trend transitions are account killers.
The shift from a trend to chop carries with it the leftover sentiment of the previous trend and market psychology even though the momentum and trend have faded away.
It’s especially difficult for traders who were trading in the direction of the trend to let go when the trade was yielding nice profits. One of the first signs that the market is slowing the trend is a loss of “mojo” – those higher highs in an uptrend and lower lows in a downtrend. Even though this is not the backbone of the trend, it’s what keeps the attention and excitement on the trend.
The attention is often what keeps the trend moving – no attention – eventually – no trend. The lack of higher highs in an uptrend (for example) keeps new buyers from getting in oftentimes. The lack of higher highs also emboldens the bears who want to short the “top”; the stall is a siren song that is hard to resist for top pickers.
What are your signs that the market is getting tired, getting ready to roll over? What do you look for?
For me it can be as simple as the 34EMA Wave losing it’s steepness, and oftentimes this is the beginning of a more “lumpy” Wave. Visual cues are easier to catch and harder to ignore. My GRaB Candles may start to plot blue candles, warning me of a more neutral sentiment creeping into the market. That’s the stall. Eventually the chop becomes too persistent to ignore as the Wave moves sideways, more blue GRaB candles appear.
While it is a common error to assume that a broken uptrend is automatically a downtrend, it’s equally a common error for the trend trader to persist with trend trading strategies versus making a transition of their own into range-bound market strategies and identifying overbought and oversold levels that are only applicable to sideways chop.
So like I said, trend transitions are account killers, BUT only when you ignore the signs.
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Raghee Horner is a private trader and author based in South Florida. She began experimenting with market timing and charting analysis in 1989 at the age of 17... (More)
- Trend transitions are account killers.
- “How can I get a piece of that trade?”
- The Core of My Trading: GRaB Candles and Market Trends
- Does what the Fed say today matter to the overall trend?
- Discretionary Trading: Why do some traders think that means trading “freestyle”?!
- Are you swimming upstream?
- Have you ever interviewed yourself?
- Five Days til the New Year: The 20-Minute Goal Setting Experiment
- EUR/USD Breakout through 1.2900 and Intraday Set Ups to Watch
- A forex trader’s view of today’s equities meltdown.