Finding Trend Trades

12/16/2012 1:00 pm EST

Focus: STRATEGIES

Toni Turner

Author, Short-Term Trading in the New Stock Market

Trader Toni Turner explains what charts and methods she uses to spot markets or stocks that are in the trending mode.

We often talk about trading with the trend, but how does a trader set themselves up to properly look for the trend and then trade with it? I am here with Toni Turner. Toni, what would you recommend that a trader do? Where do they start when identifying some of these trend trade opportunities?

Well, Rob, the first thing traders need to look at...our primary trends are on daily charts. That is the picture we use whether we’re trading swing trades two to five days, position trades, the whole trend, or even entry day.

But I think a lot of traders do themselves a disservice by staying on the daily chart and going down to entry day when they really need to, before they get into a trade, flip to a weekly chart. You would be amazed at how different the pattern is and then, at the end of every month or the beginning of a new month, flip over to a monthly chart, because that gives you a whole different picture than does the daily chart.

Wow. Well, that is definitely counterintuitive advice for most traders. What do you look at on those longer-term charts that most traders overlook?

I learned this lesson early in my trading career. A lot of us couldn’t figure out on a certain stock why it couldn’t get over this certain price. I flipped to a weekly chart and, lo and behold, beyond where we could see on our daily chart screen, there is this big hunk, a big resistance zone, and no wonder the stock couldn’t get over it. You know, just hitting his head.

So that is why it is key, because there is resistance you don’t know is there. There is support. On a daily chart, many times stocks that are rising higher are really doing so as a rally in the context of a much bigger downtrend, and you don’t know it unless...

You can fool yourself into thinking that it is something that it is not.

You can fool yourself into thinking it is something it is not.

When are those lower time frame charts appropriate then? For a precise entry, once you’ve looked at those other charts to do your homework?

Oh, absolutely. Then, we drill down into a 60-minute chart or a 15 or ten or five, whatever people use depending on what time frame they are trading in, whether it is entry day, swing trade, whatever. Then, of course, you can drill down to those smaller time frames...so I say why not look at all of them? We’re talking here like 20 seconds? Why not? Why not.

Related Articles on STRATEGIES