A mistake
many traders make is thinking all trends are the same.
Nope.
Here’s why…
Some trends
have a shallow pullback, some make a deep pullback, and some goes “crazy” in a
parabolic manner. And if you ask me, we can classify trends into 1 of 3 categories…
- Strong
trend
- Healthy
trend
- Weak trend
Let me
explain…
Strong Trend:
In a strong
trend, the price remains above the 20 periods Moving Average (MA). The
pullbacks are shallow and seldom retrace beyond the 20MA. In such a market condition,
it’s difficult to enter on a pullback because it “ends” quickly and before you
know it, the price has reversed higher.
Instead, an
easier approach is to trade the break out of swing highs.
Next…
Healthy Trend:
In a healthy
trend, the price remains above the 50MA. The pullbacks are obvious and usually
retrace towards the 50MA. In such a
market condition, it’s possible to trade the pullback as there’s enough time to
time your entry as the price retrace towards the 50MA. And often, the 50MA is at
previous Resistance turned Support which makes a high probability reversal
area.
And lastly…
Weak Trend:
In a weak
trend, the price remains above the 200MA. The pullbacks are deep and seldom
retrace beyond the 200MA. In such a market condition, you don’t want to “chase”
breakouts because it tends to fail. Instead, wait for the price to return to
the 200MA or an area of Support to time your entry.
One last
thing…
Don’t
“chase” the market if the price is far away from the “respected” Moving Average
because there’s a good chance it’ll snap back.
Telegram: https://t.me/intraday_king/
Disclaimer:
The contents produced here are purely for educational purpose. They
should not be construed as buy/sell recommendations. I am not a SEBI
registered Analyst or Investment Advisor. Readers are advised to consult
their Investment advisor before taking any decisions based on the above
write-up.
No comments:
Post a Comment