Time Crunch Trading

There are two basic ways to approach trading. One is in term of trends. The other is in terms of ranges.

In the former case one seeks to profit by capturing the directional moves (trends) which sometimes happen in the markets. The latter is based on the idea that markets tend to spend more time moving sideways in ranges than they do trending.

It could be said that when a market carves out a range it does so by having a series of little, shorter timeframe trends. For practical purposes, though, in a given timeframe there are the two market conditions.

In order to successfully trade trends, one must have a way to enter them near their beginning and exit them near the end. It is not realistic to expect any system to hit the exact start and conclusion of a major directional move, but it is possible to catch a large portion of one and make good profits. 

The problem with trend systems, however, is that they tend to be wrong more often than right. If markets do not trend that frequently, this is to be expected. The result is that trend systems generally take many small losses. The good ones, though, make up for that by capturing the big moves.

On the range trading side it is all about defining a range and making trades near its boundaries. One wants to sell near the top of the range and buy near the bottom to capture profits when the market moves from one end to the other. These sorts of systems tend to be the opposite of trend systems in that their success rate is higher, but they make smaller gains and are subject to larger losses when the market shifts from ranging to trending.

From the perspective of most part-time traders, trend trading offers a significant advantage over range trading. It is a simple question of time required to trade and monitor positions and the markets. Trend trading is generally less time-intensive.

Consider the difference between the two approaches.

If you are a trend trader, you wait for the market to tell you that a new trend is beginning (or underway), and when you get the signal you enter. You then hang on until the market tells you the trend is at or near its conclusion. At that point you exit. In between you just have to monitor things periodically.

If you range trade you are more active. You are constantly looking to identify ranges and see where the market is relative to the bounds of its range. You trade more frequently and have to pay closer attention to the market to spot the turning points where you need to make your trades.

Here’s the rub, though. Trend traders can be frequent traders. It’s just a question of timeframe. There are trends in all trading periods, not just long-term. Do not feel like if you want to trade more frequently that you have to be a range trader. That just is not true. You can trend trade as frequently as you like.
That is a side discussion, though. The point we are making is that trend trading is lower maintenance than range trading. For any given time frame it requires much less work and market focus. This is an important consideration for most part-time traders, why we recommend a trend-based approach, and why we will focus on it.

Do not just take our word for it, though.

Many of the most prominent traders of recent history are trend followers. You can read about them in the Market Wizards books mentioned earlier, and also in Michael Covel’s book entitled Trend Following. The latter does a very good job of outlining what trend trading is all about and how it can be done most effectively, regardless of market.

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