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3. Trend Direction

Trade only in the direction of the trend:

Use a trend indicator to identify whether the security is trending or ranging. Only take signals if the security is trending upwards.

Example

Charles Schwab is charted with 7-day and 150-day exponential moving averages, used to track the primary trend.

By October 23rd, when the market signals an up-trend [M], the stock is trending strongly upwards:

  • The fast MA crosses above the slow MA at [T]; and
  • The slow MA slopes upwards.

This is also evident from the successively higher peaks and troughs on the secondary cycle and the new High reached on October 20th.

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