Trend, Consolidate & Reversal

Market in 3 mode, not matter time frame. It is either trending or consolidating, after consolidates, it reverse.

To be a successful trader, we have to recognize the long term/mid term/short term trend, and find support/resistance level, then make up a valid trading plan with high probability.

A good trading plan should consist the following:
1. Current trend analysis.
2. Trading time frame.
3. Trigger condition with strong reasons
4. Stop loss which invalidate reason of entry.
5. Mental preparation to stick with the original plan.
6. Adjust stop loss with market goes the way as expected to protect profit.

It is all sounds very very easy, but how should we identify trend, support and resistance, possible reversal, and time/price of entry?

1. What is a trend.
The basic idea of trend is higher high and higher low for a up trend, and lower high and lower low for a down trend.
Or someone might say it is above MA to be a up trend.
With any definition, a trend is very easy to identify even with just one glimpse on the chart.

The problem is "Do you want to trade against the trend or with the trend"? Both are valid as long as you can enter the market with valid entry point.

2. Reversal
When the market is consolidating, it normally come with higher volatility and high volumn. Is this really true? Or maybe it is only happen for the beginning of the trend stop, after some time, the market goes sideways with low volatility until it break out.

Sometimes, the wave theory gives a 3 push leg. Exhaustion gap after long run might be the early sign of reversal.

Another point, is the strong right. In other words, when the reversal comes, the right side leg should have heavier volumn and sharper rate than the left leg. The stronger, the more posibility that the trend will reverse. Yes, that is true, because both leg trade on the same trading range, and more volumn vote to the reserved direction on the right leg.

One thing for sure, the market can not go on one direction for sure. When signs of reversal is coming, we might want to tighten the stop to be close to the high to protect profit.

3. Time frame
Time frame is very important, some time the long term (>6mo) is up, mid term (2mo) is down, short term (10day) is up. Depending on the time frame, we might take different strategies. Also, we might view support and resistance differently. Be specially cautious when trading against the general long term trend.

4. Trigger conditions.
There are some many indicators out there. But there is absolutely no "Holy Grail". From the classical indicators, to the Elliot Wave theory, to action/reaction swing calculation. But one thing we can be sure, if many indicator happen to point to the same thing. We have higher probability. All we need is higher probability to win.
With high probability + cut loss short, we have better chance to survive in the market.

Modern market use a lot of ETF. I would think trade the stock with the same direction of sector and over all market would be better. It just like you sail on the ocean, you want the wind to push you instead of sail against the strong wind. The sector and overall market trend is the wind, which will affect the individual stock.

Furthur more, we might want to choose the stock that have even stronger trend than its own sector and market. Let's call it trend leader.

With trend leader, plus proper buy on support, sell on resistance strategy, I would think there are better chance to win.

Well, how to identify proper support and resistance, I don't know. Hahaha... will keep learning.

5. Mental Preparation.
Should we trust TA? What TA can provide us? I didn't believe TA for quite a long time. But now I think TA has its value.
First, TA is a summary valid expierenc of past 100 years. So far, all what we can see have under gone the test of 100 years. We are lucky.
Second, For TA, we should understand the fundermental behind each pattern, it reflects human nature, this is one thing that will never change. And this make the same stock market story repeat again and again.
Third, Most of the traders nowadays, look at the same chart, read the same book. They agree with each other. No one is really smart than the others. If most of the trader agree certain point is the support, it will be the strongest support. We just have to train ourself to be consistent with the traders that has big money. That is all.

If we believe our TA, we should stick to the analysis, and stick to the plan. Be positive, don't be sad when losing money, summary what went wrong in the analysis. Don't be overly happy when we are right, always be cautious and protect the profit.