Trading Myth-Busters # Trend trading is difficult as market trends only for 20% of time ~ Market Experts
Depends on the timeframe you are looking at ~ Tuna
The very reason for writing this post, it opens a new window to look into the market movement. As a trader, where as I prefer to stick to my rules (system + controlled discretion), I never hesitate to explore for new opportunities. This is one of the syndrome of following Tom Dante. That guy keeps a notepad beside his trading terminal and if he finds something interesting and recurring, he immediately jots that down. I was impressed and tried follow that habit (only difference I keep a softcopy of the newly found opportunities to check their recurrence and predictability). The infamous “Choromint Setup” (VWAP/STI) which grinds the contra on last session on every occurrence was a product of this habit. Yes, I made money from that a decent no of times.
Now coming to this current topic. During my interaction with folks and based on my own study, I have found that people try to do something extra (like calling top/bottom) because they feel Market does not trend for most of the time – which is true - * condition applies.
The common rule of thumb, the market only trend for 20-25% of the time, even during a yearlong up-move, the trend will be hitting roadblocks of pullback and consolidations. So how to trade with the trend.
Let's take our eyes off from trading for a while. I am sure most of us have been to seas and if not personally experienced, would have watched on TV programs showing people surfing on the seas. Next time you see that, watch little more closely. You will see although the primary wave the surfer is surfing is swelling, there will be small waves in it which are contra to the direction of the primary wave and making the rolling effect, engulfing the surfer.
What’s the point? – The point is, On which of the waves you are surfing? Is it trending? Ever since this got my attention – I did the following
On intraday, I kept one view ready only with 3 things- ADX (+/- Di not considered), 20 EMA, 100 EMA. I start exploring bottom up (1 mins, 3 mins, 5 mins, 10 mins, 15 mins, 30 mins – STOP), in case I find that the market is dull on daily chart.
Most of the time, during this exploration you will find one of the TF is having the ADX > 25 for a longer duration. That is the trending wave where a trend-player can exploit his skill.
I have not mastered this, but trust me, last 15-20 trades on crude has been good with the new winning idea when it was choppy and distribution. Now again it is trending on daily though.
Trading System can be kept same, planning is same (buy pullback and stay with the trend), just find the TF where to trade.
I explored this analysis on Nifty. Here I mostly depend on Fractal, EMAs and STI – but many a time during a downslide, you will find the bounce back point was one of the EMAs (20, 50, 100), not on daily, but on weekly or monthly. You don’t need anything apart from EMA to call the Swing points more effectively. Nothing works better than EMA when it comes to Dynamic resistance/support with the trend.
I guess this is a window of liberty a trend trader (even on Intraday) should exploit instead of complaining that market is not trending. It is trending more than 50% time, you just need to look outside your well and smell the
Waves of the Sea.
Happy Surfing !!
