Staying with the trend is the number one rule traders should live by. The best way to play this is to find the ‘power trends’. One of the concepts we teach at VCM is to find and play the power of the trend. This has been the concept of previous articles. Today, we want to cover a very much asked question, to which many people have the wrong answer. The right answer is a simple concept, but this may make you quite a bit of money.

Below is the two minute chart of VERISIGN INC (VRSN), with the inset showing the 15 minute chart.

You should recognize the 15 minute chart as it entered its power trend. It crossed the high of the day, and the 200 period moving average. It formed a very tight uptrend, with every bar grinding higher. The eight period moving average is not on this chart, but the price would be hugging just above that area. The pattern is so tight, it is not playable on the 15 minute chart. So we drop down to the five or two minute chart, to find our entry setups. Today’s question is, after playing long all day, when is enough, enough? When is this trend going to end? Many people would say it would end here, at 1:30, due to the topping tails.

While topping tails are signs of selling, it does not mean that the trend will change. Look at all the prior topping tails on this chart, as pointed out by the arrows. They are clues of a reversal. But when is it ready, why didn’t the stock reverse? We need another event.

The other event can come from one of a couple different things. First, running into a very significant resistance area on a bigger time frame will often produce a selloff that fails to make a new high on the rally, or fails right away on the first buy setup. The second way is shown above. After 11 bars up on the 15 minute chart, VRSN produced the biggest green bar on the chart at ‘1’. It is important that this happens AFTER many bars up. NOW, the topping tails at ‘2’ are meaningful, and will signal the end of the rally. This next pullback that is happening at the end of the chart, is NOT buyable, and should be avoided, as this trend will end.

Note, there are two ways you make money from this, but most readers will only identify one. Most will understand to avoid the next pullback, which will save a stop out. The other issue, that many will miss, is that you KEEP playing a power trend until an event like this happens. Do not just assume you know when it will end.