Some people think that trading is just a matter of going “long” when the price is going up and going “short” when the price is falling. Sounds easy, doesn’t it? Actually, most professional traders say that adopting an approach like this will fast leave you broke.
Instead, many traders make a profit when they successfully pinpoint shares that are trending in one direction and trade accordingly. Surfers act in a similar manner when they catch the right wave.
Trend indicators such as the 5, 20, 100 and 200 day moving averages are often used to locate a trend and to determine when to buy and sell. But rather than trying to pick the top of an uptrend or bottom of a downtrend, successful traders know that this is pretty difficult to achieve; they instead tend to avoid short-selling in an uptrend and buying in a downtrend. Nevertheless, the hardest part of this strategy is actually spotting shares that are trending in one direction, since the market, more often than not, behaves in a directionless manner or ranges in a tight bound.