Strive for 25 - #1. $SPY & $QQQ in an Uptrend
What is an uptrend anyways? Let's get technical!
The Trend is Your Friend
The trend is your friend. Trending markets can be the key to successful trading and investing. Studies reveal that 3 out of 4 stocks will follow the overall trend of the market.
A market that is in an uptrend will trickle down to individual stocks and increase the odds of a winning trade.
What is an Uptrend?
Elon Musk, talks about first principles. There are many ways to define when a stock or market is in an uptrend, but what’s the core of all uptrends? Let’s get technical!
An uptrend consists of a series of higher highs and higher lows.
Higher Highs
A higher high occurs when the price of a stock closes above the previous peak. Below is a chart of the $QQQ from October 2020 to March 2021.
The “HH” indicates a higher high. As seen above, a higher high occurred in late November of 2020 as price broke out and closed above the green line to form the green “HH”.
Closed above the green line...at the beginning of November there was an intraday move above the green line. However, it did not close above the green line until the end of November as indicated by the green “HH”.
The close above the green line in late November was the first sign of a potential new uptrend.
One higher high does not indicate an uptrend.
Higher Lows
The “HL” in the chart above indicates a higher low. A higher low occurs when the daily low price of a stock continues to rise over time. A higher low will create a short term bottom that is at a higher price than the previous short term bottom.
The series of higher lows can mimic a stair stepping pattern where the higher lows are stepping up stairs to reach a higher price with each short term bottom.
On the chart above, a higher low in the $QQQ occurred at the green “HL” in early November 2020.
One higher low does not indicate an uptrend.
Putting it Together: Higher Highs + Higher Lows = Uptrend
Higher high + higher low ≠ Uptrend.
BUT…
Higher highs + higher lows = Uptrend.
Notice the “s”!
A higher high or a higher low by themselves do not make an uptrend. An uptrend consists of a series of higher highs and higher lows.
Why Wait to Buy Uptrends?
After a series of higher highs and higher lows occur, the market will be at a higher price. However, the probability that the market will continue to rise is greater because the uptrend has been established. Remember, an uptrend consists of a series of higher highs and higher lows.
By waiting until the market is in a confirmed uptrend, we put the odds of achieving a winning trade on our side.
We want to buy stocks when the market is in an uptrend.
Getting in Early
We may attempt to predict a change in trend that could lead to a new uptrend after a chart forms one higher high and one higher low (as shown with the green “HH” and “HL” in the chart above). By attempting to predict a new uptrend, you can obtain better risk versus reward by entering a trade or investment at a lower price before a series of higher highs and higher lows occur.
This can be a savvy strategy for tactical traders that know how to position size the risk of being early. However, you run the risk of buying before the uptrend is confirmed.
Yes, there will be stocks that rise when the market is chopping sideways or in a downtrend, but the odds are against you.
Waiting until the market is in a confirmed uptrend, puts the odds in your favor with the highest probability for a winning trade.
Remember! A market is not in a confirmed uptrend until there are a series of higher highs and higher lows.
An uptrending market is the #1 criteria in the Strive for 25 as it puts the odds in your favor 🎲
Stick around as we dive deeper into this first criteria and Define your Market.
Coming in hot to your inbox soon 🔥
In the mean time…
Join my TrendTradingBreakouts Stocktwits Premium Room.
Check out my most recent thoughts.
Leave your thoughts or questions in the comments.
Cheers to Hatching huge Gains!