Volume 7
The Trend Is Your Friend

The trend (really) is your friend (,really).

I am skeptical of folksy wise-sayings. And trading is overfull of them. Nonetheless, the notion that the “trend is your friend” is spot on when it comes to scalping, for obvious reasons. If you are new to trading, don’t ignore this. I see too many people attempting contrarian trades for no good reason. If your time horizon is very short, you need volatility and momentum to cast your trade into. And, many times you need some data to help you have confidence in a current trend. $V in fall 2021 is a great recent example.

There was a heavy drop in the stock after earnings on 10/25. Then a heavy downtrend emerged. In fact, over a month of downward pressure slowly filled a falling wedge pattern. So after the price action broke out of the wedge, then what were we to do?

A few days after breaking out of the pattern, $V traders found themselves in the daily chart posted below:

Observe a great ORB entry confirmed by a 34 EMA support. Now, of course this is a completed (after-the-fact) chart, so imagine how the traders who possibly entered as $V broke above 200 (for the first time in a bit after a heavy trend of bleeding). It could be tempting to take small green after UL $201.28, or so. If you imagine the incomplete chart at 10:40am, or so, it could easily look like a head and shoulders setting up. Sometimes people try to front-run the H&S pattern without waiting for the neckline-break confirmation with volume…don’t do that.

Definitely don’t do that.

But, the stock had been in a violent post-ER, seemingly illogical, downward spiral and traders might get jumpy at that point. Remember, this is the first time it had popped above 200 in a good bit. There was definitely a biased feeling that it could drop back down into its mighty turmoil at any given candle, continuing its seemingly unending descent of the past weeks.

Enter the almighty 34!

I like to see two or three candles open-and-close below the 34 to exit. You can see this completed daily chart and had that been your exit plan…and you stuck to it with discipline, the 34 would have kept you in the trade way past the UL of $201.30 for a very nice profit powered by the leverage of not-too-many DTE.

If you had entered with the ORB15 and 34EMA triggers, and if you could control the psychological torrent unfolding inside your psyche, this could have been a very profitable scalp and/or day trade.

Here is the point of this brief volume: if you’re entering into a stock on a bullish day after a long string of bearish decline, don’t simply buy puts at HOD (high-of-day) just because. It might “feel” shaky because it has pushed so high after so long of a decline, but you definitely need to have data…not feelings… informing your trading decisions. This is, regrettably, easier said than done. $V had been so shaky since ER, it might have seemed counterintuitive to keep this trade open on this day after $V passed $203. But you can see that the 34 would have kept you in even greater green.

Now, all we have to do is control the demon storm of our psychology. More on that soon. I find myself increasingly interested in trade psychology more than anything else at this present moment. Coming volumes will explore that aspect of trades I have made, both winning and losing.

Don’t be an uninformed contrarian.

And don’t fight the good days.

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