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Many traders, believe it or not, aren't aware of
what we're about to discuss here. Most absolute beginner traders
try to catch tops and bottoms in the market, not even trying to
trade the TRENDS. We, like many other traders first starting
attempted to do the same thing. We know this from not only our
own personal experiences, but by teaching and talking to tens of
thousands of traders that they tend to do the same thing.
Many (if not most) traders feel that by trying
to catch a market top or bottom is where the real money is. We
on the other hand disagree completely. Catching just a little
piece of a trend (and sometimes much larger than a little piece)
adds up, not to mention easier (higher percentages) to do than
trying to catch a top or bottom in the market. So, we thought by
including this topic; Trend Trading vs. Counter-Trend Trading
would be very helpful to you. We know this will give you more
insight into both of these types of trades.
Let us first start out by saying that at least
80% of your trades should be those trading with the TREND (as
taught in this Course - 'Trend Determination', etc.). The other
remaining 20% or so can constitute COUNTER TREND (CT) trades. We
would highly suggest concentrating more (at least in the
beginning) on the TREND trades as opposed to trying to pick tops
and bottoms (CT trades). By not only teaching, but by speaking
with students, especially beginners, we find that most traders
simply just try to pick tops and bottoms as opposed to trying to
enter the market with the (overall) TREND.
We'll go as far as to say you probably will
not become a successful trader by trying to pick tops and
bottoms when you first start off trading. Counter-Trend (CT)
trading takes a lot more experience. Believe us when we say that
you'll not only find trading less stressful, but much more
rewarding and profitable if you simply stick to trading with a
markets (overall) TREND. Look to make consistent profits
utilizing the profit objectives (PO's) taught in this Course --
and of course you'll occasionally catch the bigger move (by
utilizing the 'Trailing Stop' methods taught in this Course).
Of the 20% or so of trades that may become
COUNTER TREND (CT) trades, 80% of those trades should be BUYS.
Why Buys? Simply put, because we've found that BOTTOMS are much
easier to pick than tops. If you think about it, the psychology
of most traders are more biased to buying the market as opposed
to selling the market as a whole. Traders in general seem to be
more optimistic rather than pessimistic on the overall market.
We've spoken to thousands of traders that have expressed to us
that they feel more comfortable buying the market as opposed to
selling it. We know that sounds ridiculous, and we agree, but
many (if not most) traders, believe it or not, feel this way.
That's one of the reasons why bottoms seem to be easier to pick
than tops - traders are more prone to Buy than they are to Sell.
Think about it, how many stock traders do you
know that actually sell a stock short? Not many, most stock
traders buy stocks in anticipation of higher prices. When the
market gets extremely oversold and drops to levels where the big
money comes in to Buy the market (oftentimes at a 5%, 10% & 15%
overall market corrections), you'll oftentimes see the market
move higher (spike up) and continue the markets (stocks) overall
UPTREND .
When the market is in a DOWNTREND, the market not only drops
three times quicker than it rises (making it much more
volatile), but bottoms are put in place much quicker. This is
evident in any chart you look at. On the other hand, when the
market is trending up, the market generally moves much slower
and much more gradual in nature. Therefore, trying to find
market tops are much more difficult to do, at least that's been
our personal experience.
So, when attempting to BUY on a Retest of a
Low (important), the market is generally in a Downtrend, and
when attempting to SELL on a Retest of a High (important), the
market is generally in an Uptrend. By knowing these two simple
rules will help make Counter-Trend trading much more predictable
in nature, rather than trying to BUY when the market is in a
free-fall, or trying to SELL when the market is going to the
moon. At most, these rules will help prevent you from jumping in
front of a freight train.
Therefore, I suggest waiting for a RETEST OF A
HIGH before looking to go Sell Short. Conversely, wait for a
RETEST OF A LOW before looking to go Long. Remember,
Counter-Trend trades should only constitute roughly 20% or so of
your trades. As mentioned before, CT trades are definitely more
difficult than trading with the markets overall TREND.
A General Rule Of Thumb: When a market is
Trending Up, the market tends to be a lot less volatile than
when a market is Trending Down. Therefore, generally speaking a
Down Trending market is much more volatile than when a market is
trending up. A market falls roughly three times quicker than it
rises.
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