So how do you know if a trend is changing? Well you don’t…but you can position yourself to go with the “Money Flow”. If money is flowing into a stock, commodity or ETF moving averages will help you spot it. You can then use Support as location to limit your risk with a stop loss.
Below you will see two charts…the first is chart of TLT. This chart shows bonds have clearly been in a down trend…but now that down trend is being threatened. You can read the news….watch CNBC and try to guess a direction or you can use couple moving averages and few indicators to make the same decision each time.
during the downtrend….the further price moved from the 200 ma the more oversold this trend became. Next we see RSI becoming oversold……that can last for a while…so I consider it a warning….a yellow flashing light….once price flirted with the 20 ma….we see MACD signaling a buy signal confirmed by the TSI.
If you were short now you lock in profits and prepare to be stopped out of this trade. If you looking to get long you are about to get your chance. So 7 bars back we see price closing above the 20 ma the 5 ema crosses the 20ma confirming the MACD and TSI indicators. All 6 my indicators are flashing BUY….so….I go long.
Now notice the chart below….this is the same set up just few months into the trade. now we are seeing the exact opposite starting….we see price running up into overbought zone..RSI signal extreme rating….but we don’t close the trade…you could take profits here and wait…..this trade will probably run out of steam. We will know by keeping a close eye on MACD/TSI and price in relation to the 5/20 moving average.
Markets moving up or down the system is the same. The indicators work the same.
This is a picture perfect Money Flow trade. I avoided the down trend….captured the up trend…