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: Declines

As uptrends end, the same crowd that lifts price provides fuel for the ensuing decline. Longs get lulled into a false sense of confidence as rally momentum fades and a topping pattern forms. As smart money quietly exits, the uptrend hits a critical trigger point: the bulls suddenly realize they're trapped. Seeking to protect profits, they start dumping the stock. Price fails and selling spirals downward through wave after wave.

Common features appear through most price declines. Several false bottoms print and fail. Volume repeatedly surges as losers unload positions and price carries well past downside target after target. Then just as hope collapses, the stock makes a final, multiple bottom.

Pattern Cycles offer a superb way for the short-term trader to understand and capitalize upon this repeating market behavior. Look no further than R. N. Elliott's work in the 1930s and you'll find the Five Wave Decline. This structure for price correction is as powerful today as it was 60 years ago. And as a parable for crowd behavior, traders can use it without understanding the broader Elliott Wave Theory.

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