When trading the trend we must first understand the trend behaviour! Where is the Herd heading?
“Herd mentality describes a behaviour in which people act the same way or adopt similar behaviour as the people around them — often ignoring their own feelings in the process.”
You’ve probably had a parent or teacher ask you, “If your friends jumped off a cliff, would you do it too?”
Of course not! That’s insane. You’re a strong and independent free thinker. Why would you do that?
…but what if your friends weren’t jumping off a cliff?
Instead, what if they’re all buying Shares in the LATEST TECH STOCK? Every day you see the price going up a little, your friends are talking about how great the Tech Company is. After a while, it’s not so much a question of if you’re going to buy shares in this Tech Stock, but when….
How does this help with a trading trend Strategy You may ask?
The Reality is that our friends buying stocks isn’t going to move the price. However, the same Herd Mentality holds true for Institutional Traders as they are human beings after all. Even the Algo’s were programmed by human beings!
Imagine when an Institutional Trader See’s Value in a stock and buy’s a sizeable number of shares in that stock. Other Traders start to take note and after similar analysis start to Buy, which makes the price start to move up. As momentum grows and more traders don’t want to be left out, the price starts to trend up higher. This Doesn’t Last Forever as those, Human, Institutional Traders who got in early want to start taking profit at some stage. They have their Bonuses to think of after all…
When some of the early buyers start to take some of their positions off, to take profit. So do some other Institutional Traders, to cover any major Sell offs and to bank some profit. At a certain price point, those Traders that got in the HERD MOVE later on, find themselves at a price lower than their original entry.
A CRITICAL TIME IN TRADING TREND BEHAVIOUR
If those Traders in slight loss-making positions still see strong growth potential in the Instrument. They Buy more shares at a lower price, thus lowering their average holding price. Other Traders see this Bullish Volume and see this pullback as an opportunity to get in the BULL HERD
If those Traders in slight loss-making positions START TO PANIC when selling volume increases. They Sell their positions to reduce risk and loss. Some of the early entry Traders see this High Bearish Volume continue and decide to close the rest of their positions and take remaining profit. Lots More Traders then Sell and Join the BEAR HERD
TREND ON A CHART
A technical chart can tell the story of a stocks trend behaviour. I have found that the Daily time frame is the truest timeframe when swing trading a trend as each bar/candle is a measurement of a whole trading session. It has an open, a high, a low and a close. Then when you put all of these daily bars together you have a real picture of how this stock is performing and where it is in a trend or even if it is not in a trend. The Chart below tells a story and the short version is below the chart.
Let’s start on the left of the chart with range bound period with lower volume and small price action. Then we start to pick up with buying volume and price action starts to move up and we get our first impulse move (1).
Then we get some profit taking (2) – notice how the volume drops off on the pull back. Also notice we get a high-volume rejection candle that halts the profit taking pull back (A) .
Then the next impulse bullish leg (3) with increasing volume, until we get our second and longer profit taking pull back (4). Again, the volume reduces as we go deeper into the pull back.
Then we get a high-volume bullish signal (B) that starts the final impulse bullish move. Which just breaks the 2nd impulse bullish move’s high.
This is a very simple description of the behaviour presented by this stock. But keeping things simple is really what traders need to do!
What if we had a simple and repeatable trading and investing strategy to measure and trade that Trend Behaviour with Stocks, that also works for Futures trading? I have been teaching this in weekend workshops live in cities in the USA for the last year or so!
And now I have recordings of the live training sessions for the weekend training workshop and it is available in a comprehensive online course >>HERE<<