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.

Pattern Cycles: Reversals

No chart pattern better illustrates this slow evolution from bull market to bear decline than the Descending Triangle. Within this simple structure, the trader examines how life drains slowly from a dynamic uptrend. Variations of this destructive formation precede more breakdowns than any other reversal. And they can be found doing their dirty deeds in all time frames and all markets.

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 reflect the impact of crowd psychology on changes in price and momentum.

Shock and fear quickly follow the first reversal marking the triangle's major top. But many shareholders remain true believers and expect their profits will return when selling dissipates. They continue to hold 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.

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