The market is a battleground for two opposing parties consisting of bulls and bears, who each fight for control. The price action we are witnessing every day is a consequence of a dynamic fight at certain zones called support and resistance.
Bullish participants want the price to rise because only then they will make money, but they will forfeit money if the price falls. Bearish participants, on the other hand, have the exact opposite interest.
Typical Trend Patterns
If a trend is going higher according to the Dow Theory of higher highs and higher lows, you have bulls in a more advantageous position than bears.
Nevertheless, this dominating influence does not deter bears from countering against the trend. At every resistance area they regroup to attempt a fresh attack with the aim to push the bulls back down to support. They, in turn, will regroup again in larger numbers at support with the ambition to push prices back up to resistance again.
This explains the frequent setbacks and ranges in an uptrend, but are not a reason to short altogether.
The actual shift takes place when support is broken and bulls have lost the fight for control. According to my understanding, these are the best trade entries to capture a trend at its beginning stage.
The Law of Motion
Once a trend is in place, it will not easily stop. Think about Newton’s law of motion: a body wants to retain its current velocity until enough external force has acted on it to reverse.
Imagine a freight train which, once at full speed, will need to bring up a lot of energy and time to halt, let alone reverse its direction. Numerous wagons are attached to the locomotive which also need to be halted first, before the train has a chance to change its direction. Inertia does not allow an instant reversal on the spot.
The same applies to a market which involves so many participants who need to gradually change their bias and positions first. A common worry among newbie traders of a trade going against them any time is unjustified. Reversing constantly and setting tight stops leads to an accumulation of losses which by all means could be avoided if the focus was more on the forest than the trees.