How to Trade Stocks and Invest in the Stock Market Part 4
Last week, I discussed why Trend Following is the most effective strategy and that the ONLY thing that matters is the price.
I discussed how gathering and processing information about the security, commodity or currency is unnecessary.
All we need to do is to follow the trend.
We don’t even need to know the name of the stock in which we are trading.
How do we identify a trend?
An uptrend is a series of higher highs and higher lows.
The most effective way to identify a trend is with effective charting software using moving averages as indicators.
My favourite charting software is Tradingview, with everything from commodities to cryptocurrencies. The software has a free version that should meet your needs.
I have an affiliate code that offers savings for the paid version and other software on my website, https://www.klarenbach.ca/affiliates.
Once you have your charting software, I recommend the following setup:
Select candles to plot the price over time. Candles have more information than a line chart which you will learn to use in the future.
Select the asset that you are interested in and Day as your time interval.
Add the following indicators:
20 period Simple Moving Average
50 period Simple Moving Average
200 period Simple Moving Average
Create a template labelled as Day template and save.
Select Week as your interval and create, label and save a Weekly template using the following indicators:
30 period Simple Moving Average
40 Period Simple Moving Average
200 period Simple Moving Average
There are different types of moving averages to choose from, and no end of periods available.
The type and period of the moving average are less critical than you might think. What is essential is that the moving averages help identify the trend for your timeframe.
I choose Simple Moving Average with these periods as they are the most commonly used.
As Technicians, we are studying the psychology of the market, so it makes sense to use the same indicators as the most significant number of market participants,
It is important to remember that you need to find a system and strategy that works for you.
While this moving average setup works for me, you will develop an indicator setup that is most effective for your interpretation of price action.
Next week we will begin discussing how to use this chart setup.
In future articles, I will discuss the following that will provide you with the knowledge to manage your investments:
The terminology used in the market place used in future articles;
Understanding market structure and how all markets (stocks, bonds, commodities, foreign exchange and cryptocurrencies) behave the same way;
How I identify trades for investments using Technical Analysis;
Risk management strategies that I use;
What I believe is the Holy Grail of trading and investing (it is not what you think);
Several winning and losing trades demonstrating entries and exits.
That is all for now.
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I enjoy discussing the markets, whether they are currencies, equities, commodities, or bonds.
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