Stock Trading

8 Ways to Improve Your Trend Trading Results

Trend Trading Book -- Trend Commandments

If you’re anything like me then you love the idea of trend trading and seeing MASSIVE trends develop in the market.  Even better than that you love the idea of catching these trends and holding on tight for 100%, 200%, 300% gains!

For years this was my only goal.  To someday catch and ride a stock for a 100% gain.  And I remember the exact trade when someday turned into right now as I got my first ever 100% gain in Rite Aid (RAD).

Trust me, it was an AWESOME feeling.

Afterall, to really rock your trend trading results, you only need to catch a couple of those massive trends in any given year.  Right?  And if you keep your losses small and take them quick, those massive gains will really start to add up.

So what exactly is a trend, how does it develop and what can you do to improve your spotty trend trading results?

Well, let’s take a look at a trend trader’s fantasy trade, Canadian Solar, $CSIQ, which has gone on a blistering + 370% run over the last several months.

Here’s the chart —

Trend Trading Example -- CSIQ

Wow.  Amazing, right?  At the far left of that chart you’ll notice CSIQ was trading around $3 a share.  Then, at the end of July, before it took a slight drop, it was trading at $16 a share. Now THAT is the type of trend you want to be a part of.

Seriously, how many of those trades would you need each year to be a trend trading hero? I’m guessing not many.

But, we have to ask ourselves, if trend trading can really rack up the massive gains like it does, why do so many retail traders continue to close out their gains for wimpy +5% or +10% gains, or worse yet, they sit on the sidelines all together and watch these rockets fly off to the moon without them?

Let’s take a closer look and break down the CSIQ trade down step by step and we’ll try and figure out the answer to the question…

Why is Trend Trading So Hard?

In an attempt to breakdown exactly why trend trading is so hard, let’s pretend that you have been looking for a great breakout play recently.  After a ton of research and sifting tirelessly through charts, you have decided that you are going to look at new 52 week highs until you come across one that’s about to break out.

What you find is Canadian Solar (CSIQ).

Awesome.

It has a great base pattern and looks like it’s getting ready to breakout. And when it does, you are ready to go. You pick up a couple thousand shares at $5.12 and you are in!

Trend Trading Example -- CSIQ

And on the first day, CSIQ closes at $5.38, up .26 from your entry for a a gain of 4.8%.

Yes!

You are trading God! You made a great call and now your account is filling up with cash. Still, it’s early. You know you shouldn’t get too excited. You’ve read The Beginner’s Guide to Breakouts and you know that even a very solid breakout doesn’t always guarantee trend trading success.

So you calm yourself down and you wait to see what happens next.

And on the next day you get more good news —

Trend Trading Example -- CSIQ

Holy wow!  Up another 8% on good volume. You’re now up over 12% on your 2,000 shares.

You, my bro, are killing it! You are a trend trading God. And if not a trend trading God, a trend trading super hero at least!

Full of excitement and ego, you begin to count your cash. But while you do, a tiny, almost imperceptible thought enters your mind — what if price slides back? You’ve heard of fakeouts.  You’ve heard of fizzle outs. And you’re a little worried.  What if you give back these hard won trend trading gains.

What then?

But you dismiss that thought and go back to counting your stacks of fat cash! Until the next day, when —

Trend Trading Example -- CSIQ

Price stalls — and drops over -3%. Not cool, bro! Not cool at all. You thought price was going to follow through at LEAST another day. Maybe hit 20% in gains before it takes a breather.

Now it pulls back over 3% pushing your gains down to 9%.

And now, you’re really worried. This could most definitely be a fakeout. Never mind that you were going to give this trade room to grow. Never mind that you entered with the idea that this was going to be a 6 month trade and that you were following a strict trend trading plan.

And your worst fears are confirmed the very next day when —

Trend Trading Example -- CSIQ

Price slams hard with an -8.53% loss.

Your gains are now just about completely gone. You’re convinced this is a fake out. And even though price hasn’t closed back under the breakout area OR hit your stop, you close for a .03% gain and shake your head in disgust.

Breakouts — ha!  Trend trading — ha!

You give up, convinced that this trade is a complete loser.

Until —

Trend Trading Example -- CSIQ

Ouch — price pulls a sharp 180 and rockets off without you! It hurts so bad that you can barely look at this trade. But you do. In fact, it’s all you look at. Freaking CSIQ! Why won’t it quit going up?!

Do you see what happened here? You want the trend. Oh yes, of course you want the trend. But you can’t handle the trend.

Why?  Because trend trading is a very difficult, and counter intuitive, thing to do.  And it flies in the face of your natural instinct — which is to close out winners FAST (to bank those gains) and hold onto losers FOREVER (hoping they will one day turn around).

Well, I’m here to help you with that. Because I have come up with my top 8 ways to help you rock your trend trading results from now on.

1. Know What You’re Looking for BEFORE You Place the Trade

Are you looking for a .03% gain?  Or are you looking for a 370% gain?  If you’re looking for 370%, why the hell would you close for .03%?

2.  Know the Time Frame you are Trading on

Next, it’s important to know and STICK TO the time frame you are trading on. If you are hunting trends on a 5 minute chart, stay on that chart. Don’t look to close your trade on a daily chart or worse yet a 1 minute chart, because you don’t like what’s happening on your 5 minute chart.

Stay in your time frame!

3. Know Your Trading Plan Inside and Out

This one takes time and revisions, but after you have been trading awhile, you should start to get a good idea of what works and what doesn’t work for you.

Out of this information comes your trading plan.  And once you have it, you had better stick to it.

4.  Know Your Exit Strategy!

Once you are in your trade, you need to know what will get you out of it.  Will you be using a trailing stop? A staggered stop? A moving average? A time stop. What is it? What will keep take you out of this trade?

5. Start Out Small

Don’t put all of your equity into 1 position. Sure, the big names did it and do it all the time. but they have experience doing it. it took them years to get there. You…are not that guy. So don’t pretend.  It’s a much better idea to take on small positions in the beginning as a way of calming your nerves and giving you the clarity of mind to let your winners run.

I remember the first 100% gain I got on a trade. I did it by making sure I was trading the right position size.

6. Study Past Winners

Seriously. Eat, sleep and drink them. Print out a bunch of charts and make sure you know the characteristics of a good breakout and a good trend.  Know what to look for in winning trades.  Know what to look for in losing trades.  And know what to look for in trades that aren’t going anywhere.

And when you see that price action, know what to do.

7. Don’t Close Your Trade Unless Your Exits are Hit

Looking for a target of 100%? Don’t close till you get there. Getting out when a trailing stop is hit? Don’t close until it is hit. Using moving averages? Wait until price closes below that moving average.  The temptation to close earlier will be massive, but once you start doing that it’s a very nasty habit to break.  So stay in until you said you would — stick to the plan!

8. Update Your Rules

The more you trade, the more you will learn. And as you learn you will want to update your rules.  But don’t change your rules lightly.  Make sure you have a reason for doing so.  And make sure the rule improves your results.

In Conclusion

Trading trends and holding on for huge gains is not easy and it’s not for everyone.  The best thing you can do is check it out and see if it fits your personality.  Maybe it will and maybe it won’t.  maybe you will love trend trading and hunting massive gains.  Maybe you’ll find out you like looking for micro trends on shorter time frames.

Whatever the end result, it’s always great to examine your trading and yourself and work toward a plan that helps you maximize returns in the market.

Until then, let’s rock there markets!

 

How The Biggest Retail Traders Got Rich
Trade Pocket Pivots Like an O’Neil Disciple
Make A Lot Of Money With A Small Account
Trend Trading Vs. Counter Trend Trading, Which One Is Better?
Stock Market Update 09-09-17

A short week in the market this week and outside of...

Stock Market Update 09-05-17

Now that summer is drawing to a close it’s time to...

Russell 2000 (IWM) in Trouble…?

The markets have been rallying for quite some time — have...

Market Update 03-19-17

Happy Sunday everyone! I hope you all had a killer week...