The Plusses of Trading the Impulse
The Plusses of Trading the Impulse
Most traders have heard that saying "the trend is your friend" before, and in our classes at Online Trading Academy, we teach that concept. One of the unique advantages of the Professional Trader Course is that we allow our students to trade live with our capital. This serves many benefits. The most obvious benefit is that the student gets real life experience in trading live and can feel the emotions that go with every push of the mouse click. The second, more important benefit, though, is the ability of the instructor to monitor the students' grasp of the skills taught and to be able to identify and correct trading errors before the students risk their own capital.
In analyzing many new traders' performances, I have seen a disturbing pattern. I notice that they are willing to enter long and short positions in the same security, in the same trading day. When I analyze their trades with them, they quickly see how one side of the market was much more profitable than the other. So, why do we try to fight the trend instead of embracing it and trading in the safer, more profitable direction?
The trend can be divided into two distinct parts: The impulse and the correction. The impulses are the smaller moves in the direction of the larger trend and are what we should be trading. The corrections are the pauses in the trend and may move sideways or opposite of the trend. These corrections allow traders the opportunity to re-enter into the dominant trend direction before the new impulse.
Impulses demonstrate several characteristics: They have fast moving prices, they tend to have larger candles and they may have gaps in the trend direction. Overall, they are violent moves that cover large price advancements in a short time period. Kind of sounds like you would want to trade with them, right?
Figure 1
Corrections differ greatly in that they are slower moving and cover less price action. These are riskier to trade in that if traders do not exit in time, they will be on the wrong side of the new violent impulse. Corrections can usually be measured by supply and demand levels on the current time frame, a return to a moving average or trendline, or even Fibonacci retracements.
Figure 2
There are many techniques we teach in our classes to identify the current market environment. If you do not take the time to do this before putting your money into the market, you greatly reduce your chances for success. Take the time to see where you are trading and trade with the direction that offers the greatest profit potential with the least amount of risk... the impulse. Use the corrective periods to set up for the next trade. If you are not sure how to identify these environments, come to one of Online Trading Academy's classes and learn. Trade with your friend, the trend!
- Brandon Wendell
About Brandon Wendell
Brandon has appeared as a guest on CNBC, Bloomberg TV, and Fox Business Channel. He has conducted special seminars for CNBC staff on technical analysis of the financial markets. Brandon has published articles in The Trader's Journal, Forex Journal, Investor Magazine, and Investor’s Business Daily. Brandon has also appeared as an industry expert speaker at the Trader’s Expo, The Money Show, and Asia Traders and Investors Conference.
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