Is the Trend still your friend?
There are very few of the old adages I personally find helpul in today’s market enviorment. One of my favorites has always been, “The Trend is your Friend”. It was, however, declared during an age when markets would trend for prolonged periods in a relatively smooth and orderly fashion.
First, I am interested in everyone’s opinion on whether the globalization of markets, high volatility and wild price swings have invalidated (or, at least diluted) the utility factor of this wisdom.
Secondly, I am interested in how people view and define a trend.
It seems to be, but time frame might be a quite short one… Actually I have seen during intraday that there are no more easy places for scalpers and pick up the day trend is the key to the
You can only make money in trends, no matter you are a trend follower or swing trader, it is only the definition of the trend pattern that needs to be defined in order to attempt to capture it.
HFT are also trend followers in the sense that they capture deference in price from other slower HFTs when price gaps (as an example), they found such patterns that are happening these days and their adapt to it.
I think large trends still happen, and if their are not happening then maybe look for trends in smaller time frames or at support and resistance levels.
It is like finding the best hook for the fish in the sea you are in.
I have long practiced taking trades only in the general direction of market prices. What I am experiencing more and more is once the trend direction is validated, it is often to short lived for my strategy to hit its profit objectives.
the proverb is still alive and kicking. the trend is indeed your best friend. i see that you are facing a problem of right exits. try to work on it, my suggestion – start booking at 50%, 75% and 100% of your price objective by exiting 50%, 25% and 25% respectively. if it fails to meet your actual final price objective, just exit the last 25% on any reversal you sense to be strong so that atleast
Notice that what looks like zig zag on a daily chart, might be a strong clear trend on the 5 min or hourly chart!
I will agree in generally that it requires some sort of trend (i.e., directional price movement) to profit, even if it is on the micro level of a couple of ticks of data. Your statement about defining the trend pattern seems to be the challenge. A trend cannot be defined prematurely nor may it be defined to far after it started.
My profit targets are dymanicaly based on position size. I have tested various exit strategies as you suggested. What I experienced with scaling out of the position, is that the last contracts to be exited, had the burden of carrying the others that exited too soon which meant prices had to move further to reach the profit objective. The exit strategy I find most profitable is a trailing stop to lock in a percent of the profits once a threshold is reached.
I agree with you on the time frames though the challenge of timely defining the trend remains.
Thanks for your comments.
I think at least in USA equities, trends have been reduced significantly since the “crash”. In general markets have been alot more choppy. There is truth to questioning the trend is your friend because trends were dimenished, and in my opinion you either have to surff on top of the zig zag taking profit at tops and bottoms or dive deeper to smaller time frames in search of trends
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