The Right Way to Find Entry and Exit Point

Frank Kollar of FibTimer.com explains why trying to catch tops and bottoms is a fool’s game, and why trading with trends is the only way to make money consistently in this business.

Acting Without Thinking Logically
For example, as you drive in traffic, you “instinctively” slow down or change lanes when the car in front of you seems to be driving erratically. You may have noticed that many drivers will make the lane change to avoid slowing down, and will even speed up to pass to take advantage of everyone else slowing down.
People react instinctively. Some act without thinking logically about their options, and without taking steps to avoid possible danger. They often tend to make poor decisions. Behavioral economists have demonstrated that people also make automatic, unconscious decisions when trading the markets.

Playing it Safe
As humans socially evolved, they learned to protect their survival by playing it safe.
Playing it safe may be prudent for very long-term investors, but for shorter-term investors…those who are unhappy with the losses incurred during numerous inevitable downtrends, and who wish to avoid those losses or capitalize on the downtrends, fear of risk and uncertainty is an impediment to success.

Following the Masses
A common illustration of risk aversion happens when market participants follow the masses, as if they are wild animals banding together as a herd for protection. They look toward others for direction, regardless of the consequences.
Of course, not all investors will sell. Some will become so panicked that they will be afraid to acknowledge their losses and want to leave them on paper, hoping that the prices will return to previous levels in the coming weeks. During a bear market, this can be an even worse decision.

The Question of Time Frame
How do we establish that a trend has started?
Simply put, all we can depend on in the stock market is price. Price will change either up or down. Change is constant. If price moves higher for a sustained period of time, we are in an uptrend. If price moves lower for a sustained period of time, we are in a downtrend.
But remember what we said previously: history shows that trends do occur in the markets that last months and even years. In fact, the stock market is trending in measurable medium- to long-term trends about 80% of the time. Long-term trends are easy to see on historical charts. They can also be traded with a high degree of profitability, over time, by using trend trading strategies.