Learn how one man made his trend following fortune: Get free video now. We are repeatedly asked: MACD or Bollinger Bands? Which is more profitable: And we repeatedly answer: Technical indicators are simply small components of an overall trading system, and not systems in and of themselves.
They are like a couple of tools in a tool kit, not the kit itself. I tried Indicator X and found it was worthless or I tried Indicator Y and found it useful , make no sense.
These statements imply that an indicator is the actual trading system. Nothing could be farther from the truth. Many popular financial web sites i. CBS MarketWatch , etc. Keep in mind, when you hear the hype about indicators, money management actually makes up the bulk of a winning trading system. Trend following is not based on support and resistance lines or areas of congestion. Trend following is not based on Fibonacci numbers, the golden mean, nor is it related to the works of Gann or Elliott.
The following predictive indicators are not used in trend following:. These indicators are all designed to predict what a market will do. You can discount all indicators designed to predict a market move. They are not, by themselves, a predictive trading system. Technical indicators are only useful as part of a complete reactive trading system.
The only true method for trading is a long term trend following system that reacts to the market. Moreover, by itself, a technical indicator is meaningless. My understanding of trend following is that if you want to make money, buy low and sell high.
The trick is to identify entry and exit positions and there is a host of guys out there promising that their particular system will solve all your needs. Why do you feel entry and exit is the crucial issue in trading? Good traders buy higher and sell lower all along, focusing on how much money they are making or losing not just winning percentages. Buying higher means that as a trend moves up you buy more as the price increases.
Would you only want to buy at a price of 5 or 6 or 7?
Depending on your system, you might buy at 20 or 30 or even higher. Not sure what we mean?
If the trend goes to , how do you know it in advance? The point is to ask yourself, when do you buy? At price levels of 5, 6 or 7? At 20 or 30? Buying more as the trend progresses is what we mean by buying higher highs. Trying to buy low is nonsense.
Are you promoting an alternative way of identifying the trend plus a money management system? The key is not where you enter and whether you have a profit or loss on a position. The key is how big must you be trading based on market volatility.
That must be your concern. So you should be trading smaller. Lose the concept that where you enter is critical. What is relevant is your current position, your equity and where the market is now.
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But, focus on where real trading success comes from: That was his strategy. But as trend followers know, this type of strategy is prone to problems.
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The biggest problem being that it goes against the math of getting rich. He is not letting his profits run! When you trade as a trend follower, your objective is to stay in a position forever. Of course, you have a plan for exiting long before you enter the trade, but the idea is to follow the trend as far as it will go up.
Many people use the jargon terms support and resistance. The words are used to describe perceived tops and bottoms in a market. Unfortunately, support and resistance is a waste of time. Whether the market is going to penetrate support or resistance has nothing to do with your entry price. Your entry price has only personal significance. It has no objective significance in the market. The market is not going to go through a support point or go through a resistance point just because of what your entry price is.
The concept is not a relevant factor. Review trend following systems and training:. Pricing for trend following systems, risk management, trading psychology and black swan strategies.
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The entire contents of this website are based upon the opinions of Michael Covel, unless otherwise noted. Individual articles are based upon the opinions of the respective author, who may retain copyright as noted. The information on this website is intended as a sharing of knowledge and information from the research and experience of Michael Covel and his community.
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No Predictions Trend following is not based on support and resistance lines or areas of congestion. The following predictive indicators are not used in trend following: More … These indicators are all designed to predict what a market will do. More on indicator issues.
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Here are examples of useless Technical Analysis. Entry and Exit Straight Talk Q. How High Will It Go? Support, Resistance and Entry Many people use the jargon terms support and resistance. Trend Following Products Review trend following systems and training: Michael Covel Trend Following Products.
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