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.

The term waves is most often associated with Elliott waves. Ralph Nelson Elliott developed the Elliott wave theory. Elliott wave theory can be very detailed in its rules and complicated in its application. The alternation of optimism and pessimism among the masses of traders creates the waves in the market. Traditional Elliott wave theory declares that every trend has five waves: three impulse moves and two corrective moves.

Trading to the long side or going long simply refers to buying the market first and then selling your market position later. The idea is to buy at a low price (relatively inexpensive price) and sell at a higher price to make a profit. In other words, “buy low, sell high.” Most businesses trade to the long side.

Bollinger Bands were created by John Bollinger in the 1980s, trademarked by him in 2011, and have enjoyed a wide following by many technical analysis traders. You can use them to help determine trend, strength, and volatility — the variation of the price of a market over time — in a dynamic, adaptive manner. A market that has high volatility makes a large price movement in a given period of time.

Amateur traders often complain that they make some money trading and then they soon give it all back (and sometimes give back more than they made). This seesaw effect of making money and losing money over and over is common for many traders because, for example, markets aren’t always trending in a clear direction up or down.

Two elements to the ADX indicator that help determine whether the market is trending up or down are plus directional movement (+DM) and minus directional movement (–DM). These two elements indicate trend direction: When +DM is above –DM, trend is up. When –DM is above +DM, trend is down. ADX measures the strength of either the uptrend or downtrend.