Trading Stocks

So how does a new trader begin to understand the basics of the current market trend? First, try with these few basic guidelines that hold true at any experience level. Moving averages are always a good guide to use to help you establish the current trend. Are the 20 and 40 rising or falling? Are we above or below the 200? Is the 20 above the 40? Is the 40 above the 200? Are we in a pattern of higher highs and higher lows or are they starting to even off showing the potential for a base to form?

Many traders like to be market "gurus" and nail every twist and turn in the market. But a wiser choice is to follow a plan, play proven strategies, and always keep a close eye on what the market has done to help you determine your best course of action in the future.

Hell's Triangle

The classic Descending Triangle illustrates the painful rollover from bull to bear market better than any other pattern. But why does it work with such deadly accuracy? Most traders don't understand how or why patterns predict outcomes. Some even believe these important tools rely on mysticism or convenient curve fitting. The simple truth is more powerful: congestion patterns in technical analysis reflect the impact of crowd psychology on changes in price and momentum.

Shock and fear quickly follow the first reversal marking a triangle's major top. But many shareholders remain true believers and expect their profits will return when selling dissipates. They continue to hold positions as hope slowly replaces better judgement. The selloff then carries further than anticipated and their discomfort increases. Just as pain begins to escalate, the correction suddenly ends and the stock firmly bounces.

For many longs, this late buying reinforces a dangerous bias that they were right all along. Renewed confidence even prompts some to add to positions. But smarter players have a change of heart and view this new rally as a chance to get out. As they quietly exit, the strong bounce loses momentum and the stock once again turns and fails. Those still riding the issue now watch the low of the first reversal with much apprehension.

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