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Saturday, April 9, 2011

Trend for 9th of April 2011

Today I want to talk a little bit about long term trends and how you can trade them. I will use the example of precious metal silver to illustrate what I mean by long term trend. First of all, if you want to capture a long term trend you have to see the big picture and you are able to see the big picture if you analyze daily, weekly and monthly charts. By looking at these intervals you are able to see full current year (if you look at daily charts) and a few years or even a decade if you look at weekly and monthly charts. 

So, if you looked at silver chart from 2004 through 2006 you will see that silver was in a pretty tiny range. That is very good, because we can always be sure that a price will never stay in this kind of range forever. It can usually be there for half year, one year, and occasionally two years (very seldom ten years). Then the prices break the range and go up or down. You can trade these breaks very easily by simply entering the market at the break of the highest high or lowest low (depending which level is broken). Then you simply have to go with the market and wait till the market is exhausted. So, you should have bought in 2006 and kept the position for half a year. You would have made a pretty nice amount of money by trading this way. 

There are a number of ways how you can exit the market. One way is: you calculate the size of the range by the value of pips of dollars. The size for silver was a little bit over 3 dollars. That is the distance you expect the price to travel (minimum). As silver broke up you would have exited around 11.50. We can see that market went much higher, but you would have also got pretty cool profit by exiting at the mentioned level.

There are many more ways of exiting a trend and I think I will share those in my future posts. I will give a few thoughts about that in my tomorrow’s post. To finish with, I want to say, that if you want to get into a big trend you have to do it in the very beginning, because in this way you will be able to create a line of positions and maximize your profits in this way. If you look at silver now, I do not think you should take big positions. It does not mean the market will stop soon. It simply means that when prices have gone that far, it is no longer investment but speculation. 

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Trading financial markets carries a high level of risk, and may not be suitable for all investors. All information on the blog is of educational nature and cannot be considered as advice, recommendation or signals to trade in any financial markets.