How To Trade Successfully In Any Market

 Is there a way to make money in the markets?

Absolutely!

 Not only is there a way to make money in the markets,
but one can also be consistently profitable in the process.
Any one can trade and make money, but not many can do
it on a consistent basis. It is not how much you make, but
how much you keep. Being consistent means you are
keeping profits, and not giving them back. This article is
all about trading, not about investing. Investing involves
more of a buy and hold strategy, and seeking value in a
company. Those days are over, for now, as this is written
in the Spring of 2009.

No stock is immune to the weight of a Bear market, nor
to the growing global economic uncertainty, massive
amounts of accumulated debt, and countries, not just
companies, going bankrupt. The days of simple buy and
hold entail too much risk exposure over time. The principles
of trading apply to any stock or futures market because it
is all about making the best possible selection and then
managing the position, be it for days, weeks, or months.
It all depends on your time frame and portfolio size.
Regardless of the vehicle you choose, stocks or futures, it
is all about being consistent in making profits, and without
taking undue risks. The Number One Factor The single
most important piece of information you can have about a
chosen market is knowledge of the trend. This is the one
factor that overrides everything else! You can be off a little
in timing when taking a position, but if the position is in
the same direction of the prevailing trend, the trend will
help save the premature, or late, entry.

 By contrast, if a position is taken against an established
trend, price will work against that position, and losses can
add up very quickly. From a practical standpoint, and an
intuitive one, as well, it makes no sense to go against the
trend. Having the wind at one’s back can lift even the
slowest boat. Heading into the wind is inherently more
difficult to manage and has more peril. Anyone wanting
to trade against the trend is a fool.

Why?

The object is a perceived short-term gain at the risk of
going against discipline. The worst thing that can happen
is to have counter-trend trades work because it will
encourage counter-trend trading in the future, and that is
defying the odds, and luck always runs out. Know the trend,
and stay with it. It keeps you in the most favorable price
environment, and it gives you an edge, and having one
reduces risk exposure. You always want an edge. Rule
number one: Know the trend, and never trade against it.

What Is A Trend?

In its simplest terms, a trend to the upside is a series of
higher highs and higher lows as prices advance into higher
ground, and hold above previous lows, along the way.
When price is trending in an upward direction, it means
that demand is in control. This reflects the basic principle
of supply v demand, and you want to have as many
principles on your side whenever you trade. Principles are
basic truths, and truths never change, and so they are
reliable. What you are doing is building on strength and
incorporating sound principles that will enhance your
performance results when trading with the trend. You have
also created a framework from which you can confidently
operate in any market in the choices you make. Trading
with the trend, knowing that demand is greater than supply,
means you can be more assured that the buying forces are
stronger than the selling forces. You will see evidence of
this by noting the overall character of market behavior.

How?

 The daily ranges will be larger as price rises, and volume,
in general, will be greater on up days. By contrast, down
days will tend to be smaller in range, and volume will be
lighter because there are fewer participants to the downside.
Rallies will last longer than declines, and the advances will
be greater than the corrections. Areas identified as support
will hold as buyers step up and take advantage of buying
opportunities while the trend continues upwards. These are
some generalizations, and they are not always true on any
given day, but these observations are useful guides in
analyzing the behavior of market activity, based on
recognized and established principles. The reverse holds
true in a down trending market.

Trading Is An Art

Trading requires flexibility and the exercise of judgment.
It is not a science that can be reduced to some form of
precision and number crunching. The underlying element
of all trading is human decision-making, and we are all
subject to the mass psychology underlying the markets.

 The recent melt down of the sub-prime mortgage market
was driven by human greed, from Wall Street institutions
to banks earning massive amounts of fees, unprecedented
in history. No amount of computerization can ultimately
account for the human element, and there were so many
computerized trading programs that took massive hits and
losses of equity in that collapse. In fact, few investors saw
the Tsunami wave of selling and were stunned, unable to
react to what they saw happening and could not believe.
Investor accounts were decimated, across the board. What
is the one factor that remained true throughout that huge
turnaround?

The TREND!

Knowledge of the trend showed signs of reversal months
before the market collapse. There were ample warning
signs to no longer be on the buy side of the market. The
simple indicator of price trend is very powerful, and it
kept anyone who knew about trends safe from the recent
calamity. The principle of supply v demand also remained
true. Supply overwhelmed demand and went swiftly with
the direction of a newly established trend. Once the trend
turned from up to down, anyone who was long was going
against the trend, and as was mentioned earlier, losses can
mount quickly when you are against the trend. Can there
be any better proof of the trend being the single most
important piece of information you can have at your disposal?
Now you have two rules: Rule number one: Know the trend,
and never trade against it. Rule number two: Never violate
Rule number one.