Patience is Key at Time of Conflicting Signs

When there are signs in the market that are in conflict with your decision, how do you act, this is a key question in trading.  For example, stock XYZ broke out after a couple of months consolidation with zoomed volume and upward trending 50DMA, your decision tend to follow xyz's breakout.  Sure, breakout means some sort of certainty, duration of previous trend can be evidence for certainty as well, the longer the duration, the more likelihood trend is about to change; plus the volume and 50DMA, the heavier volume is, the more reliable of breakout in terms of indication of new trend's direction.  But the conflicting sign is that broad market has risen continuously for a couple of months and due for a pullback, this usually means picture is not clear, and there are still uncertainties. but conflicting signs means uncertainties.  Trading is about being patient at most of time, waiting for uncertainties to clean out by passing of time, then take action at the right time when number of uncertainties are minimal regarding whether a new trend is about to start or not.

Timing of Entry to an Early Trend Change

When an intermediate term trend changes, it can either be indistinguishable from a corrective pull-back or happen so quickly that you don't have enough time to react to it.  In both cases, traders should pick entry spot very carefully in order to neither jump the gun nor be too late to the game.  When the trend change is evident to everyone, market usually will get ahead of itself as too many people are taking positions in the same direction.  You can identify this situation by monitoring the standard deviation between security prices and its trend line/moving averages.   In extreme situations when security prices are 1.5 - 2 standard deviations away from trend line, people are tempted to take positions driven by greed and herd mentality, which are exactly what a good trader should fight against.  Good trader should refrain from taking actions during this situation, only experienced traders would be able to take contrarian positions during this situation and be profitable.  This looks like a simple requirement, but successfully doing this requires two important capabilities:

• identify the new trend accurately as early as possible
• focus on just few important securities and follow their trend only, and not allow other "trends" to distract and affect decisions