Trend Qualification and Trading

Significant money can be made in the stock market by following big trends. In Trend Qualification and Trading, market technician L.A. Little explains how to identify and qualify these trends to determine the likelihood that they will continue and produce better trading results.

By combining price, volume, different timeframes, and the relationship between the general market, sectors, and individual stocks, Little shows how to measure the strength of stock trends. Most importantly, he demonstrates how to determine if a trend has what it takes to develop into a major move with greater profit potential or if it is basically a false signal.

• Takes a proven technical approach to identifying and profiting from financial market trends
• Shows how to best time entries, when to take profits, and when to exit trades
• Introduces Little's proprietary concept, The Trading Cube, which visually combines time and trend for a given trading instrument

Filled with in-depth insights and practical advice, this guide will help you make more of your time in today's markets by providing an in-depth explanation of how to identify and qualify trends.

Foreword xi

Acknowledgments xiii

Introduction 1

Part I Trend Theory 5

Chapter 1 Redefining Trend 7

Chapter 2 Classical Trend Model 13

Objective of the Model 13

Inputs 14

Model Definition 14

Rules for the Model 15

Applying the Model 18

Summary 22

Chapter 3 Neoclassical Trend Model 25

Objective of the Model 26

Inputs 29

Model Definition 30

Rules for the Model 37

Summary 46

Chapter 4 Determining Trends 49

Fundamentals for the Long Term 49

Swing Point Logic 50

Identifying and Labeling Trends 65

Summary 70

Chapter 5 Qualifying Trends 73

Using Swing Point Tests 73

Trend Continuation and Transitions 75

Retest and Regenerate 97

Summary 106

Part II Application of Trend Theory 109

Chapter 6 Preparing to Trade 111

Overview of Trading Strategies 112

Risk versus Reward 115

Time Frames 116

Summary 125

Chapter 7 Entering and Exiting Trades 127

Support and Resistance 128

Price Zones, Not Lines 131

Defining Entry and Exit Points 136

A Trading Example: Combining Technical Events 161

Summary 166

Chapter 8 Reversals and Price Projections 167

Price Reversals 168

Price Projections 176

Summary 187

Chapter 9 Time Frames 191

Time Frame Analysis 192

Time Frame Integration 197

Establishing a Trading Bias 206

Trade Trend Matrix 212

Summary 214

Chapter 10 Markets, Sectors, and the Trading Cube 215

General Market 216

Market Sectors 217

The Trading Cube 219

Summary 240

Chapter 11 Trading Qualified Trends 243

Example of a Qualified Trend 244

Entering a Trade 249

Exploiting the Trend 258

Exiting the Trade 263

Flipping Trading Positions 268

Concluding Thoughts 272

Notes 275

Glossary of Key Terms 281

About the Author 287

Index 289

L.A. LITTLE is what Jim Cramer called a "technician extraordinaire" on his Mad Money television show. Little is a professional trader, money manager, and senior contributor to RealMoney.com and TheStreet.com. His columns on those sites generally receive 50,000 to 75,000 views. Little also provides daily market analysis and the tools to implement the trading strategies covered in this book on his web site TAToday.com. He has contributed articles to well-known technical trading publications such as Technical Analysis of Stocks and Commodities and Traders World. With a trading philosophy centered on capital protection first and the accumulation of consistent gains over time, Little exposes a simplistic technical approach to trading the markets that is a throwback to the days of past.

Given its undeniable importance to all traders, and its use in most of today's trading tools and systems, understanding the technical concept known as the "trend" is critical to your success— whether you're trading soybean futures in Chicago or a solar energy company in China.

Significant money can be made by following the right trends, and now, in Trend Qualification and Trading, market technician L.A. Little explains how to identify and qualify these trends to deter- mine the likelihood that they will continue and produce better trading results.

By combining price, volume, time frames, and the relationship between the general market, sectors, and individual stocks, Little shows how to mea- sure the strength of trends. Most importantly, he demonstrates how to determine if a trend has what it takes to develop into a major move with greater profit potential.

Divided into two comprehensive parts, this reliable resource focuses on a redefinition of trend through qualification, explores the implications of trend qualification, and examines the practical applications that flow from it. Page by page, it examines the classical trend model as well as a proposed neoclassical model— which provides the theoretical foundation for both the identification and qualification of trends—and then takes that theory and shows you how it relates to the technical decisions of successfully entering and exiting trades.

With qualified trends, a new age of technical analysis has been ushered into the trading consciousness. These trends are apparent in every stock, commodity, and financial trading instrument and have the potential to lead traders down a more profitable path. With this book as your guide, you'll gain a firm understanding of this innovative idea and discover how to incorporate it into your everyday trading endeavors.

So, throw out all those derivative indicators! With trend qualification, swing points, and anchored support and resistance, you can become a consistently profitable trader.

Given its undeniable importance to all traders, and its use in most of today's trading tools and systems, understanding the technical concept known as the "trend" is critical to your success—whether you're trading soybean futures in Chicago or a solar energy company in China.

Significant money can be made by following the right trends, and now, in Trend Qualification and Trading, market technician L.A. Little explains how to identify and qualify these trends to determine the likelihood that they will continue and produce better trading results.

By combining price, volume, time frames, and the relationship between the general market, sectors, and individual stocks, Little shows how to measure the strength of trends. Most importantly, he demonstrates how to determine if a trend has what it takes to develop into a major move with greater profit potential.

Divided into two comprehensive parts, this reliable resource focuses on a redefinition of trend through qualification, explores the implications of trend qualification, and examines the practical applications that flow from it. Page by page, it examines the classical trend model as well as a proposed neoclassical model—which provides the theoretical foundation for both the identification and qualification of trends—and then takes that theory and shows you how it relates to the technical decisions of successfully entering and exiting trades.

With qualified trends, a new age of technical analysis has been ushered into the trading consciousness. These trends are apparent in every stock, commodity, and financial trading instrument and have the potential to lead traders down a more profitable path. With this book as your guide, you'll gain a firm understanding of this innovative idea and discover how to incorporate it into your everyday trading endeavors.

So, throw out all those derivative indicators! With trend qualification, swing points, and anchored support and resistance, you can become a consistently profitable trader.