Books and Articles by 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.

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.

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.

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.

Trend trading has been an extremely popular approach to making money in the markets for as long as trading has been documented. Even those who don’t consider themselves primarily trend traders often consider the trend as part of their market analysis. With so many people looking at market trends, the question, “Exactly how do you determine and measure the trend of any given market?

The trading hardware you require depends on the type of trading you’re doing. In this context, hardware refers to your computer, monitors, network, power supply, and so on. Be sure to check the hardware recommendations of your trading software provider to see the minimum computer requirements for using its software.

After determining the direction you want to trade, you then look at the momentum indicator to see whether momentum (strength) is behind the trend. The trend, as shown by the 50 SMA, tells you only the direction of the market at this snapshot in time. It doesn’t tell you whether the trend is strong or weak. If you execute a trade in the direction of a weak trend, that trend will likely end right after you enter.

Some traders prefer to buy and sell retraces in the trend. Some traders prefer to enter trades on breakouts — entering the market after price breaks above a previous high (or below a previous low if trading short). Entering on retraces or breakouts are both valid trading techniques. The concept of trading a breakout is to wait for the market to make a commitment to the upside by moving above a previous high.

One of the most important advantages of trading in the direction of the trend is that when done correctly, your winning trades are much bigger than your losing trades. This advantage is stated right in the definition of the word trend — “to extend in a general direction.” The terms extend and general direction reveal that trends are long-term moves.