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Trend Following vs Trend Dependent

July 14, 2012

Although my trading style is not ‘Trend Following’, it’s important to acknowledge that it is heavily dependent upon an ability to identify the prevailing trend, and days like today serve as a clear reminder of this. Although they’re obvious with hindsight, identify choppy trading ranges in real time trading is not so easy. For me, the clearest indication (besides a series of losing trades!) is when the market oscillates around the EMA, and the CCI shows overbought and oversold readings in equal measure. If we’re not making new highs or lows, then there’s no real trend to trade with.

As soon as I am able to recognise that the market is range-bound I know that it is best just to stand aside, and I’ll only enter once I see a clear reconfirmation of the trend. Today, following my third trade, I would have needed to see the market break through the session high before entertaining a further long entry; it failed to do this.

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Daytrading Chart 14th July

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Did anybody make money today? Of course. I’ve applied a Keltner Channel to the chart and marked possible Mean Reversion entry opportunities. The ADVANTAGE Value Chart also picks out similar levels. All of this is fine, but you still need to have a clear plan in place to use these tools successfully. How will you recognise a trend-less market? How will you manage your exits? Where will you place a stoploss?

My plan is to trade pullbacks in the trend, and if I am unable to discern the prevailing trend with any degree of certainty then I don’t need to be involved. What I do is trend dependent, and I understand the implications of this.

View Today’s Chart

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