Uptrend, also known as rising trend, is the trader’s favorite trend type. In this trend, stock price trends in upward directions by making series of higher high and higher lows. Though, it is safe to make a buy decision anywhere in uptrend, it gives best returns when bought near pullback or intermittent lows.
As we have learnt in ‘tool to identify trends’ uptrend can be determined by joining any two low points of the chart and drawing a trend-line. This trend-line is extrapolated and it act as support. Trend is considered as long as the trend-line is not breached. Each subsequent lower point in trend line should be higher than previous one. The steeper the trend line the stronger the trend.
Other way to identify trend is by its moving average. A rising moving average indicates that stock is in trend. If the shorter moving average is on the rise, then short term trend is in place. If a longer moving average is rising then stock is in long term uptrend. As we have seen in complex trend example where there could be many counter trend in a long term trend, agile trader spot them and play in both direction to make profit. Strategies with uptrend This is in addition to the strategies explained in previous section.
Each time the price comes toward trend line, Smart traders accumulate some more and take partial profit when it goes toward upper end of the extrapolated previous highs.
For every new position, corresponding stop loss need to be placed in.
Trading multiple times in uptrend, it is best to not consider average out. Since, accumulation happens in chunks, they may consider separate trade for initial term and a strict stop loss should be placed.
Trailing stop loss would yield maximum result. While there is no fixed rule for putting trailing stop loss, depending on price movement of the stock and typical trade interval, previous, one or two days low could act as a good stop loss.
Exit as soon as trend line is breached particularly when with higher volume.