As a trader, you have probably heard the old adage that it is best to trade with the trend. This is sage advice as long as you know and can accept that the trend can end. And then the trend is not your friend.
In light of the current market conditions impacted by to COVID Pandemic , Stick Market are showing very strong ‘one-way’ trends in the U.S. and India Stock Market, I wanted to write a lesson not just about the advantages of trend-trading, but also about how trading against the trend can and will destroy your trading account.
Many traders I have interacted with have one common habit
- When Market are FAILING MOST OF TRADERS ALWAYS WANT TO GO LONG
- When Market are RISING MOST OF TRADERS ALWAYS WANT TO GO SHORT
During my time trading and coaching traders how to trade, I have found that it almost seems to be human nature to want to trade against the trend, at least in the early-stages of one’s trading journey. When Market are going Down most of traders want to go long Remember During Lock down people wanted the market to close as prices were falling everyday. Now when CORNOA Cases have crossed 12 lakh in India,Economy in Shambles Stock Market are making new high every day.
So, I hope today’s lesson will help you avoid making this gigantic mistake that so many beginning traders make, by showing you tangible proof of why the trend is definitely your friend and why you should not trade against it most of the time.
Cutting your losses can be extremely difficult to learn and letting your profits run can be ten times more difficult than learning how to cut your losses.
Don’t fight the path of least resistance
When markets are trending, they want to move in the direction of the trend because that’s the path of least resistance. Below is few chart which shows part of least resistance and how market keep rising.The point of the below example is this: in strong trends, you need to only look to trade with the path of least resistance,
Reliance see how its touch the Moving Average we have drawn and price keeps rising . Path of least resistance is on Upside so its easy for price to scale up.
With Tesla surpassing the market cap of every single auto market in the world last week, including Japanese giant Toyota, which in 2019 sold 10.6 million cars compared to Tesla’s 367,500, Tesla has continued its relentless, steamrolling ascent, and with its stock rising as high as $1,800 after hours, its market cap is now well over $250BN (increasing by $50BN in just a few days), having exploded from $1,000 to $1,400 in 5 short days and 5 stock squeezes.
Tesla’s current market cap makes it bigger than Bank of America ($202BN), Walt Disney ($203BN), PayPal ($208BN), Netflix ($210BN), AT&T ($214BN), Verizon ($226BN), NVidia ($236BN), and Intel ($250BN), and is rapidly closing in on Home Depot with a market cap of $267BN.
Below is the Chart of NASDAQ see How price keep rising as path of least resistance is on upside. When there’s a clear path of least resistance in a market, don’t fight it!
Trying to hit the top and bottom of the markets becomes a habit in them from the first day they start trading, and this is because of nothing but a bad instructor who is not a trader himself. This habit causes them to go against the trend while it is still strong, because they take any reversal signal, even the weak ones, to enter the markets at the beginning of a possible new movement.
I hope it’s becoming more obvious to you just how dangerous trading against the trend is. Traders also tend to try and trade both sides of a trend, both with it and against it, and in doing so they typically give back most or all of the profits they made on the trades with the trend. This is one of the biggest mistakes I see traders make that prevents them from achieving real success in the market.