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An Object Lesson - The Importance of the Dominant Trend

Dear Trend Follower,

Trawling through the 950 or so UK and US stocks as I do every day (automatically, not manually!!) I came across Cairn Energy, a FTSE 250 share and thought that it illustrated well the principle reason why we, at ShareHunter, insist on only trading in line with the dominant trend of the stock and the market index as promulgated by Weinstein. At the same time it also well illustrates the dangers of ‘bottom trawling’ (that many traders still subscribe to).

I have shaded the areas of the four different dominant trends that we identify and you can see what an effective tool ‘Stage Analysis’ is; it will prevent us from buying the share when the share is going sideways or down; it will allow us to identify the right time to go short (at the start of a ‘stage 4’ Downtrend) and it will encourage us to buy at the start of a ‘stage 2’ Uptrend and the ‘stage 3’ Topping trend is our signal to lighten or exit a position in the share.

CNE, weekly share prices –



Those traders who thought that the bottom had been reached (during the recent, long, Stage 1 Basing trend) will be feeling very sick right now after the share’s fall from 273p area to 201p. Ouch, sorry guys but “thinking” is not the way to trade profitably – it is by reading the trend and the prices action relative to the volume action (I have not included volume in this short review) that the true course of events can be unfolded. Wait for the Uptrend to become the dominant trend, don’t guess.

With regards
Alan Saunders
Chief Analyst, ShareHunter.com
February 2014