Problem with short lived uptrend?

Question

Can anybody plz tell me how to estimate the probable strength and durability of a newly formed uptrend?

For the last couple of trades, as soon as I entered, the uptrend exhausted within next 1-2 days and I was forced to exit with losses,the moving averages collapsed over one another and the trendline was broken.

So is there any means by which it would be possible to understand that whether a newly formed uptrend will be strong and long lived or weak and short lived? So that I can trade the strong and long lived uptrends only..

Plz explain in details

Thanks

-rocky

Answer 1

Before you open a position in what you assume to be the start of a new trend, wait for pullback. When price holds on support or resistance, as you expected, then look for entry as close as possible to that level.

There is no sure way to trade. Some of the best traders I know , only 40% of their trades are winners. Their secret is in how they manage risk when trading. Always trade with small position size. Never risk more than 2% on any trade, and always--cut your losses and let winners run. If you worked on limiting your losses, the profits will take care of themselves.

Good luck!

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PS

The goal of a good trader is not to make money, but to trade well. - Alexander Elder.

Answer 2

I think you need to use more than just technical analysis in order to succeed in stock trading.  

Technical analysis is nothing more than an expectation that investors will behave the same way as before.  Which means that technical analysis doesn't take into account the differences in economic conditions.  And technical analysis doesn't take into account the possibility that the general mood of investors may be different this time.

If you are always buying long in a bear market.  Then chances are that you will loose again and again until you either run out of money or you get tired of loosing and change your trading strategy.

Answer 3

In addition to what is mentioned above, remember the reason behind why prices move. Prices move based on supply and demand, and what can be explained through the game theory. If you spotted an uptrend that turns around $1-2 after it starts moving, that can usually be explained through game theory. People are taking short-term profits even though the trend is still on their side. Why do they do it? Because the more experienced traders know that the others are doing that as well. There will constantly be profit-taking in an uptrend and that's why you will see pullbacks every time it goes up a little.

The only way to see the true strength of a trend is to understand the fundamentals of the company versus the fundamentals of the market. If the value of the company is strong, then it's technically already in an uptrend waiting to happen. Timing these uptrends is rather challenging, because you just can't tell when those more experienced traders will choose to hold rather to take short-term profits.