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Using Trendlines: Why Kids Make Great Traders
As traders we have a tendency to surround ourselves with the latest and greatest thingamajig in hopes of making more money. But complex is not always better. Sometimes “complex” can lead to “confusing” which gives way to “frustrating” and maybe even “busting your account.”
Don’t get me wrong. I’m not against technology in trading. However there are some basic principles that must be adhered to if you’re going to make money in this game. The good news is the basics are simple: simple enough for an eight-year old to understand yet powerful enough to be the backbone behind every successful trader.
THE TREND
How many times have you heard “the trend is your friend”? Knowing the trend and sticking to it is the easiest way to make money trading. But if it is that simple why is it that 90% of traders lose money? The obvious answer is that 90% of traders can’t correctly define the trend or, if they know the trend, choose to trade against it.
THINK LIKE A KID
Identifying the trend is not difficult, especially if you think like an eight year old. Put a chart in front of an eight year old they can easily tell you if the market is going up or down. Here is what an eight year old sees: if the market begins in the lower left corner of the chart and finishes in the upper right corner it’s an uptrend. If the chart begins in the upper left and finishes in the lower right it’s a downtrend, with only a few minor corrections along the way. If you have more than two trends on a chart you don’t have a trend at all, you have a range.
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