Trending or Non-Trending When people look to use the financial markets as a business, IE trading to make money and use this to replace their current income, so they can develop a better lifestyle and work from home, then the question always arises as to what is the best trading philosophy. Philosophy comes before strategy I believe, as your core philosophy should help sculpt your final strategy. Going with the market or going against the market, are the two main view points favoured by most traders. There are other approaches, but these two cover a wide swath of strategies used by most traders. The point of this discussion is to see if we can find benefits in applying either or. Trending The core philosophy in the financial markets are that markets are unpredictable and yet are non random. If you look at a chart of the British pound GBP against the US dollar USD over the last 10 years it is hard to say that some markets are nothing but predictable. in Illustration 1 below we see a chart displayed showing the GBPUSD daily price chart from 2013 through to 2015.
Illustration 1: GBPUSD Daily Chart
The key point here is that this chart has clear trends lasting years and so this means trying to go with the flow, trying to ride those trends in the market has potential, maybe trying to pick the tops and bottoms may be a little harder. Or is that true? In illustration 2 below we can see there are trend lines drawn onto the chart to define the market direction, these create trading channels that almost predict where the market will go next. In Illustration 2 we have zoomed in on two trading channels that last almost 12 months for each trading channel. Just using that two year period as a study, let’s look at the two ways a trader could approach trading using both a trending and a non trending philosophy.
Illustration 2: Clear trading channels A trader who had identified this trading pattern could buy at the lower points of the rising channel or sell at the higher points in the second channel, as highlighted in Illustration 3
Illustration 3: Buy and sell points highlighted This is a trading style where the trader is waiting for points when the market may be ready to move back in the direction of the primary trend, but the trader may be taking trades against the short term price movements to achieve this.
So the question then remains is this trader trading the trend or are they trading a non trending system by picking the short term tops and bottoms? Funnily enough, this trader is doing both and could be said to be trend trading and non trend trading. If you want to learn how to take advantage of the opportunity the financial markets offer you need to learn some strategies and philosophies, and with the right tools and the right direction and support, you could start to learn how to capitalise on the sizable opportunity the markets offer. At Equitimax Insiders Circle our programme helps people develop into traders. Run your own education business