Sometimes your hear people say that trading is easy. You buy when the prices are going up and you sell when the prices are going down. Well if that is true why do so many traders fail? Is the trend not your friend as they say? Of course trend is your friend but do you know what the trend is?
"The trend is your friend if you know him well"
How do you know if you are trading with the trend? Some traders will use a moving average others will use a momentum indicator or another indicator. There are so many indicators. Actually you can choose what you want. The problem is that a lot of traders use those indicators in the wrong way. They think they traded in the direction of the trend based on their indicator. Lets give an example with a very popular indicator the exponential moving average period 200.
See the image above. If a trader takes a short here with a target about 3 bars lower is he trading with the trend? Because the EMA 200 is pointing down? Well although it looks like that if have to disappoint you : this trader is NOT trading with the trend. Why not? The reason is that if the trade would go in the right direction the price would reach his target level in about 1 hour. The EMA 200 is an average over 200 candles! It doesn't give you any idea about the short term trend. It is only relevant if you have a target that will be reached tomorrow or so. It is useless as an indicator if you are planning to hold you position for 1 hour or so. Well you don't see it on the chart but the prices went up instead of down. And they went up a lot ...about 3 times his profit target. Meaning bad trade......
"Indicators are only useful if used correctly"
A EMA200 is a lagging indicator because its calculated based on 200 candles back. So when trading short term you are better off with less lagging indicators. So the moment you have chosen your favorite indicator you have actually decided how long you are planning to keep your position open. Lets look again at that 15 min chart but this time with the EMA5. If a trader went long when the ema5 turned up and respected the time period his indicator implies he would have made a great trade. To bad a lot of traders get greedy. They think it will go up further and they keep their position. They forget that if they are keeping it open although it looks great at that time they are not trading with the trend anymore. They see evaporating that profit and even see it going into loss later......
"Whenever your enter the market your trend indicator will tell you how long you should keep your position open"
The only thing that i want to ask you know? Well have you been trading with the trend as your friend so far?
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