TRADING WITH TREND – IMPORTANCE OF TREND AND ACCORDINGLY TYPES OF TRADERS
Indian stock market is trading on highly important level and trend at present. We advise all traders to trade according to trend. I would like to give some information about trading with trend.
There are three types of trend in a market Long-term, intermediate and short-term trend and this is the formula to earn in trending market, but question is how we can combine trend with trading.
As a trader or an investor you have to decide first what type of trader you are, if you are short term player then play accordingly short term trend only (short-term trend last for less than 1 month), if your medium term investor then play according to medium term only (1-6 month), and long term player should consider long term trend of market (9 months to 2 years or more).
Now every think look like ok and very simple to read, but where is the problem arises while trading???
In a simple way market is price fluctuation of price, which is depend on psychology of investor and trader, and according to psychological behavior of traders we see high volatile moves in a market.
Problem is very simple, when you change your trading type, you get trap with trends. For example you decide to buy XYZ for long term investment for 2-3 years, but due to sudden fluctuation and due to fall in price, you exited this stock in 6 month time in loss. Now just observe what happen here, you change your type of trader from long term trader to medium term trader and this decision force you to book loss on falling in intermediate trend and same happen with other types of trend, when you change your decision.
Very well-known example – I decided to trade intraday in market with limited funds, I took some buying positions but due to fall in price I never booked intraday loss of the day I carried position thinking that coming days it will provide me retunes, but it never happen as I thought, coming days my holding given me more loss than I had for intraday. So here again I changed my decision from intraday player to short-term trader and it force me to book loss in market.
Hope you must have understood the concept very well, but applying it with the trending market is highly difficult task and this need patience.
“Playing with the market trend is like, swimming with the flow of water, if you try to swim opposite the tide you will lost in an ocean”
I wish before following my levels and study, trader or investor should get some basic guide line which I follow personally.