Micro trend trading belongs
to the area of day trading. However, it is different as a day trader may not
necessarily have to wait for some daily trend to develop, but can use other
trading strategies to enter a market of his choice. A trader who wants to trend
a micro trend has to wait for some momentum to develop (or a reversal to take
place) before executing a trade.
Since a trader needs
momentum, the best thing he could do is to pick up volatile securities and
trade only those in these minor market tendencies. If we take eur/chf pair (in
Forex) it is not very volatile. Or a better example would be eur/gbp,
especially during Asian session. A skunk would not squeeze a pip in these
market conditions. However, you start picking gbp/jpy or gbp/usd pairs and you
see a different picture. That’s what you are looking for when you want to catch
and ride a micro trend. The same can be said about other securities: stocks,
commodities, bonds and etf’s.
There are certain times when
volatility unavoidably increases and one can expect that. In other cases you
can never be sure what is in store for you. Those certain times are economic
news releases that affect all financial markets and volatility spikes in almost
all financial instruments.
What you need to do first is
to select candidates for your trades. You will hardly be able to spread across
all markets or trade multiple securities. You will have to select two or three
and to monitor them more closely than others. I would look through other
securities, but concentrate on two or three.
Secondly, you have to
determine appropriate time frames on your charts. Since these are short term
moves you are chasing, be sure not to pick out large time frames. In my
subjective opinion, 5 and 15 minute charts are best to watch for this type of
trading style.
Then, you will have to
determine your profit and loss targets. Daily momentum (in Forex) usually lasts
one session and then prices fall back in to ranges. It is quite often for
prices to rally for about two hours and then lose direction. So, you have to be
realistic about your expectation for the day. And always set your profits
bigger than your stop losses.
Fourthly, you wait for the
trigger. Triggers depend on a strategy you choose. You might wait for a
breakout of some level, or crossover of moving averages or a break of some
chart pattern and etc.
Fifthly, enter the market
when you see the trigger and go with the flow. If the trade goes wrong you have
your stop loss order to protect you. If it goes where you expected you will
have bigger profit than your previously set loss.
Good luck in trading micro
trend.
See also:
Disclaimer
Trading
financial markets carries a high level of risk, and may not be suitable for all
investors. All information on the blog http://trend0.blogspot.com/ is of educational
nature and cannot be considered as advice, recommendation or signals to trade
in any financial markets.