The Art of Trading
Welcome to Trend Rider, a trading system for the stock market. The trend is your friend and trend trading can be the most profitable form of trading. Trend Rider is trend trading and swing trading. It is all about entering jauntily the next trend. Let's start with the first question in trading, which is:
When to get in?
- Is it right to buy into falling prices or better to wait for them to stabilize?
- Could it be necessary to wait a little longer and buy only the first move up after a fall?
- Should one chase rising prices or even wait for a base after a rise?
- Does waiting still a bit longer for a restart of the trend after a pause give the needed addtional boost?
- Or perhaps ignoring price action and concentrating on fundamentals is the best thing to do?
The answer is: It depends, but not on the situation. Instead, it depends on the trading system you use, which should be clearly aligned to one or the other style. In other words, one can make money in the markets with cyclical and anticyclical systems. Just don't try to mix one method with the other.
Trend trading means going with the flow
Almost by definition procyclical behavior is mandatory for trend traders. The Trend Rider trades at the current high, for short-term entry situations and also for longer terms. This has two advantages:
- The probabilities at the start are skewed to the trader's favor. The high indicates a running trend, there is pressure that drives the price further and makes an entry easier.
- There is a trend at all, which means prices are moving in the right direction, perhaps for a longer time. The cyclical method is the faster way to become rich. Anticyclical traders are more investors. They generally need a long life.
The longer trend and fundamentals do matter for a sound system. Stocks could be traded solely on a day trading basis, but that means giving up most of the possible gain. The real money is made by holding when things go well and riding a trend for many month that at its best finally overshoots by a wide margin.
That is why fundamentals are important. Like prices, which run away once they have gained momentum, revenues and earnings of companies that rise do this often with a remarkable constancy. We have a growth stock. It pays off to take rising revenues into account. Over all concentration on such stocks will yield better results even if the targeted time horizon of holding periods is much shorter.
Advantages of stocks
One of the beauties of stocks is that they are essentially options but without the expiration date. At least this is true for stocks on the move. It is possible that they multiply their value by a large factor, and yet, they can't go below zero. This alone is highly interesting, because it offers the possibility of a random trading system, just driven by stronger moves upwards than downwards. Of course this effect only becomes noticeable if you hold a stock for a longer time. Day traders go away empty handed.
Another fine thing about stocks is that there are stock markets, by which I mean that there are thousands of possible trading candidates. Compare that to Forex or futures. Together with ETFs, some of them being short-instruments and others matching foreign markets or commodities, there is always something to pick. Without the need to go short you can still enjoy the option-characteristic of stocks.
Why a system and why rules?
Strict rules in a trading system are important because there is psychology involved. Experience tells that a system that concentrates either on cyclical or anticyclical methods and doesn't try to mix them, is far more easy to apply. A system whose elements are uniformly supporting either one or the other style is enormously helpful. There are more than enough reasons to get confused by the markets alone. Psychology is the deep problem of a trader. He needs a trading system as a foothold for combating uncertainty.
The most basic rule for the concrete trading is the stop-loss. This is the ingredient that makes cyclical trading what it is, meaning it is far more than just keeping losses in check. If you enter a position and don't get stopped out, you are on a trend. If you get stopped out, the trend has come to an end. This is of course a simplified and probabilistic view, but it shows how a rule of a trading system steers the trader into the right direction.
For anticyclical investing a stop-loss is devastating, because it is contradicting the idea of buying as cheap as possible. This is a fine example where in trading the right element can be in the wrong system.
What is a trading system and what is it not?
A trading system must be self-consistent. All parts of the system must fit together. Something that doesn't fit, while it may be the right thing for another system, is like a grain of sand in the machine, the money machine that is. So, is there a money machine? Not only that there is one, there must be one, otherwise you could have no system and trading would be only gambling.
Of course this machine can't serve everyone. As common sense tells, there will only be few who can exploit a specific system. A system that is trading the high and overshooting prices has fortunately a relative large capacity and is able to support quite some people's desire for success.
Trading at the high means also something else. The Trend Rider system only buys stocks long and doesn't go short. Together with the rules to allocate the trading capital to the right number of stocks and not to use margin, at least not overnight, it more or less assures that you can't go broke. Money management is the part of a trading system that should be nothing but a pure machine.
Of course even the best system and the best money management can't guarantee that a trader will not incur losses, contrary to what so many want to believe or want to make others believe. If that is not clear to you, please read my disclaimer.
The market and its system
Astonishingly, chances that prices go in the right direction relative to the wrong one are almost always about 50:50. The best bet for the price some time ahead is usually the current price. This is the universal law of the market and, whereas I hesitate to add this here, it is almost independent of any feelings and ideas you might have about a bias of the future price direction!
The reason is the market itself. In most situations prices are near an equilibrium. Not only that demand matches supply, but also chances for up- and downwards moves approach each other. The market mutates its state constantly so that it is hard to figure out. It has to be this way. But then, how to trade? You probably guessed it by now. Chances can diverge when the price is on the move. That is why momentum traders operate at the high.
Philosophy of a Trend Rider
The basic principle of the Trend Rider system is to get on board of an ongoing, starting or restarting movement with a tight stop in a situation where price pressure gives statistically more often than not a good start. The preselection of stocks at a longer term high with rising fundamentals will then do, again statistically of course, its magic and produce some bigger gains over time.
In short, the Trend Rider system enters at the day high or near the high of a short term move and that in a longer term trend possibly with fundamentals also on the rise. This is the ideal, but in reality it is more complicated than identifying a buy signal every time the price is near a high in all time frames.
Prices can get ahead of themselves and become vulnerable to swinging back. What we need are forces that are not exhausted. Oscillations are a necessary occurrence in all time frames, otherwise the market would be too easy, everyone could figure it out and everyone should win, which is impossible.
Then there is the "magnetic" effect of the whole market. Relative strength can indicate price pressure even with prices going down. The ideal of trading at the high has to be adjusted to cope with these oscillations, random influences and index induced forces.
What about swing trading? Perhaps it could not easily be seen as cyclical, because the swing trader typically waits for a price retreat and then for the first turn of the tide. The Trend Rider system is also able to trade swings being in a longer trend. This way it converts the regularity of swings in entry safety and exploits still the power of the trend, which is a basic method for managing oscillations. You are a swing trader and you knew this already or find it simplistic? Well, look at your trading history and see if you applied your knowledge!
Fine theory and ugly reality
In reality things differ from the ideal and so a trading system needs some robust rules for dealing with the real world. The classic problem is an ongoing trend and a trader waiting for a dip. When it finally comes, the trader gets in but the price doesn't want to swing back and the trend has topped out.
One of the key elements of trend trading is to get on the trend as fast and riskless as possible. Ideally the trend is smooth, the swings are clear, the start is crisp. That would be the easy case, but reality looks mostly different.
Does searching for specific price patterns in longer ranges result in high-probability trades? Or do we have to identify specific fundamental situations for nearly riskless entries? The answer is no. There is absolutely no reason why the former should work, and while there may be clear situations of the latter type, they are too seldom.
Chart wizards and fundamental number crunchers, I hear you grunting now. It may be hard to believe for you, but it doesn't work this way. There is no way to identify infallable signals or secret patterns beforehand. Using a trading system is bending statistics to your favor and not hoping for investing wizardry.
How does it work then?
- The most powerful chart pattern is the trend, because it means something real. There is a valuation shift underway and that is fueled for instance by the specific product of a company. When is comes to forecasting quality, the trend dwarfs all other chart formations and also comprises all too complex fundamental number exercises. Be able to judge the trend and the product situation and you will see the big picture.
- Trading means overcompensating losses with gains. On the micro-level this is done by having short-term setups with matching stops that make sense and knowing when to get on a trend.
- Trend trading means literally trying to enter trends while minimizing many smaller losses in order to be eventually in some trades that make huge gains.
The Trend Rider system uses the daily bar chart, because it has a medium time frame usable for short-term trading and holding a position for a longer time. The other basic advantage is that daily bars are the most natural time frame, mirroring our activity during the day and the pause of the night. If you look at the market through the glasses of the daily bar chart, you will find more regularities than with any other time frame.
The daily bar chart is the foundation for the entry patterns of the Trend Rider system. These entry setups allow for statistical advantages exploiting more coherent movements that arise for short times from a generally chaotic market behavior. Even the atypical usage of the system for day trading is possible this way.
It is this advantage at the start of a trade that is psychologically necessary for applying the stop-loss rule. Both combined with the preselection of stocks with a longer term strength lets traders operate near the possible optimum.
How to become a Trend Rider?
You can get the Trend Rider system right now and here. It comes as an eBook in PDF format waiting to be downloaded by you. The system requires only a short time of work around and after the open to analyze the situation, get directly in and out of positions and set up orders for the rest of the day.
Over the years I compiled many short versions of a "system check list". Then I decided to put work into a real book to have it for myself and for others, which is the reason why it has its price. No big deal, as having a price is not unusual for useful things! Your payment is securely processed by Clickbank and you will immediately be able to download your personal copy.
On 117 pages I describe detailed and with a compact style all you need to know to execute the system. Here is an overview of the contents:
- Short introduction of the basic idea and why the system is suitable for a short-term oriented trading style like swing trading and also for riding longer trends or growth investing.
- The preselection of stocks by long-term prospects. After briefly showing why this is important even for swing traders, the exact criteria are presented. What are the identifying features in a chart, the fundamental situation of the company and its product spectrum? Some long-term charts with revenues and earnings get discussed in conjunction with products and background to demonstrate with examples how to gauge the future potential of companies.
- Entry and exit. The technical part of the Trend Rider system is made of 13 trading rules, 19 buy setups in 3 categories and 4 sell signals. Don't try to judge now what exactly this means. This chapter has an introduction that explains why I have structured the system like this, how these elements work together and why it works. The trading rules are simple to understand and easily applied and the same goes for the sell signals. The buy setups are the more difficult part despite a precise description of each. But, to get started, you can concentrate on any subset of them you like. There are some example charts depicting the buy setups. Most charts show more than one entry situation and every buy setup gets illustrated at least once. For traders who like to handle things more flexible, there is a part devoted to fine tuning the hot entry phase.
- Money Management. This is an important ingredient of every system and thus deserves its own chapter. With the help of some graphics I show where the borderlines are, how to maximize results, what you should never do, and where there is some freedom allowed suiting your personal readiness to assume risk.
- Psychology is the trader's mine field. The Trend Rider system is executed by discrete entry and exit decisions and so its users need to be aware of the effects of psychology. After a short introduction how to use this chapter, this difficult topic gets discussed from three angles. I start with preparations for using the Trend Rider system and go on asking the question "What can go wrong?" with a comprehensive list of possible problems and answers how to counteract them. Finally the question becomes even more embarrassing: "What will go wrong?". I think it is necessary to face psychological difficulties that can't be circumvented. These are the things that make up a trader's life, and how he handles them distinguishes good traders from not so good ones.
- However, the technical part of the Trend Rider system is designed to be robust. As much as possible I wanted to diminish the influence of psychology. Still, I think the psychology chapter has its merits and to finish the book not on the grim side, I have at the end some encouraging words for you.
You expected more? A method that is easy to use by everyone and success is guaranteed also for everyone? There is no such thing. It simply can't exist. Everyone would have to be a winner. The markets have to be difficult...
That is why I consider the Trend Rider system to be a good investment. If you are a trader struggling with the stock market who feels that there should be more in it for you, it could be even a very good investment.
All the best,
Focus on the right trend and relax
with the Trend Rider system
P.S. There are different ways to approach the markets. Many of them fail or try to gain something where not much is to gain. You are looking here at a very efficient method of putting money to work. Other than that, many additional ideas and thoughts complete the picture and any of these could be the one that completes your trading. There will be something in it for you, but still, trading is an art...