We've all heard the phrase "the trend is your friend" and it is a valid way of investing or trading, but what about when the trend ends? It seems natural for some traders to want to anticipate that a trend may be coming to an end. Either for a small pause in the trend or for a more meaningful reversal, many traders prefer to go against the trend rather than ride it. Today I offer some tips should you consider fighting the trend yourself.
1) The blow off top. To anticipate a trend change you will want to see some reason that you think it may end. One event that traders focus on is the blow off top. It consists of a steady move higher followed by a sudden, sharp move with the trend that signifies the final push by the buyers. While this is not always indicative of the end of a trend it is one way you can look for a potential reversal.
2) Prior trouble areas. Many traders like to use support and resistance areas to consider entries or targets. Assume you have a trending stock that has trended all the way to a known resistance area. While there is no guarantee of sellers entering the stock, it is, at the very least a point where everyone can see the obvious resistance. Taking into account other market and stock factors may just make that the right moment to enter against the trend.
3) What is the higher time frame doing? Let's say that you want to use the daily time frame and consider going against the trend. Consider looking at the weekly time frame as well. Is there some resistance you notice? Does the trend seem extended on that weekly time period? Looking out at a higher time frame will also let you know what others are thinking as well.
Fighting the trend is not easy and takes a considerable amount of practice to develop your approach. Hopefully these few suggestions will focus you in on something that allows you to profit!