Barry Burns

The practicality of trend trading is that you're waiting for the market to "show its hand" by establishing a clear direction and then jumping onboard for the ride.This handy Cheat Sheet provides an overview of how to follow the big-money market players to the glorious land of profitability. Get tips on why trend trading works so well, how to determine a trend that will continue after you enter the market, and how to manage your risk once you're in a trade.

Investing is defined as holding a position for more than a year. Here is a quick overview of the pros and cons of this long-term strategy. Remember investing isn’t actually trading (trading is defined as a short-term activity). Advantages of investing The investing time frame is the most popular. Because it’s less active, the term trading is not used for investing.

If you have reasons to believe that a market is going to go down, you can make money by short selling that market. Short selling (also known as going short or shorting the market) means that you’re selling the market first and then attempting to buy it later at a lower price. It’s exactly the same principle of “buy low, sell high,” just in the reverse order — you sell high and then buy low.

The most obvious indicator for measuring momentum for many traders is the aptly named momentum indicator. It simply measures the amount that a market’s price has changed (often referred to as rate of change) over a given period of time, which you designate (14 bars is a common time period). Another way to express the momentum indicator is that it measures the current bar’s closing price to a specific number of previous closing prices (such as the closing prices of the last 14 bars) and gives a reading as to how fast price is moving in a direction.

Although swing trading has its benefits, those benefits come with trade-offs. The term swing trading originally referred to holding a position for just a few days. However, the term has expanded in popular usage and now often refers to holding a position overnight (at least two days to distinguish it from day trading), but not as a long-term investment of a year or more.

Trend trading is a common and long-standing approach to trading for good reason: It works! Following are some reasons why, so you don't have to blindly accept the premise — and also because understanding why can give you the confident mind-set required for successful trading. The "whales" control the market. The markets are priced-based on an auction model of bids and asks and buyers and sellers, so logically the big fish in the sea (the market participants with the big money — pension plans, mutual funds, banks, hedge funds, insurance companies, and other institutions) create the big moves in the market.

Trend trading begins with determining the trend. The trend of the market is defined as the long-term direction of the market. But how do you determine what that direction is? You can look at a chart and see that from the left side of the chart to the right side of the chart, the market has been moving up. Based on that observation, you may say that the trend is up.

As good as trend trading is, trend shouldn't not be the only factor in considering whether or not to take a trade. Other factors must be added to it to provide enough variables to create a probability scenario that puts the odds on your side. Trading in the direction of the trend (the dominant direction of the market) is a great place to start.

Newbie traders are often targets of hype promoted on the Internet and elsewhere, promising get-rich-quick approaches to trading. Beware of anyone promising overnight success. Trading is a real, legitimate profession and, like any other profession, requires a thorough education, a dedication to earnest study, development of skill, lots of experience, and a commitment to personal growth in the process.