Trend Qualification and Trading: Techniques to Identify the Best Trends to Trade

by L.A. Little

Quick Summary

Presents a systematic framework for qualifying trends before trading them, introducing classical and neoclassical trend models based on swing point analysis, trend continuation/transition patterns, and multi-timeframe integration. Covers practical entry/exit strategies, price projections, reversals, and the 'Trading Cube' for sector analysis.

Detailed Summary

L.A. Little presents a rigorous methodology for determining not just whether a trend exists, but whether that trend is qualified -- meaning it has the structural characteristics that make it likely to continue and therefore worthy of a trading commitment. Published by Wiley Trading in 2011, the book introduces both classical and neoclassical trend models and integrates them into a practical trading framework.

Part I, Trend Theory, begins with Chapter 1, "Redefining Trend," which challenges simplistic definitions of trends as merely higher highs and higher lows (uptrend) or lower highs and lower lows (downtrend). Little argues that this basic definition, while technically correct, is insufficient for making profitable trading decisions because it does not account for the quality or sustainability of the trend.

Chapter 2, "Classical Trend Model," presents the traditional framework with clearly defined objectives, inputs, model definition, and rules. The model uses swing point analysis -- the identification of significant local highs and lows in price -- as its primary input, with specific rules for determining when a trend has been established, continues, or has broken down.

Chapter 3, "Neoclassical Trend Model," extends the classical framework by incorporating volume analysis, momentum, and the concept of "trend quality" metrics that go beyond simple price structure. The neoclassical model provides a more nuanced view of trend health that can identify early warning signs of trend deterioration before classical confirmation.

Chapter 4, "Determining Trends," combines fundamentals for long-term context with swing point logic for intermediate and short-term trend identification, providing step-by-step procedures for identifying and labeling trends on any time frame. Chapter 5, "Qualifying Trends," is the book's key contribution, introducing swing point tests that evaluate whether a trend is merely present or is qualified for trading. The concepts of trend continuation, trend transition, and the "retest and regenerate" pattern are central to this qualification process.

Part II, Application of Trend Theory, translates theory into trading practice. Chapter 6, "Preparing to Trade," provides an overview of trading strategies, risk-versus-reward assessment, and time frame selection. Chapter 7, "Entering and Exiting Trades," covers support and resistance as price zones rather than precise lines, defining specific entry and exit points, and combining multiple technical events for higher-probability trades.

Chapter 8, "Reversals and Price Projections," addresses trend reversal identification and methods for projecting price targets once a new trend is established. Chapter 9, "Time Frames," discusses multi-timeframe analysis, time frame integration, establishing trading bias from higher time frames, and the "Trade Trend Matrix" that maps the current trend state across multiple time frames simultaneously.

Chapter 10, "Markets, Sectors, and the Trading Cube," introduces a three-dimensional framework that considers the general market trend, sector trends, and individual stock trends simultaneously, ensuring that trades are aligned across all levels of the market hierarchy. Chapter 11, "Trading Qualified Trends," provides a complete worked example from trend identification through entry, exploitation, exit, and potentially flipping positions when trends reverse. The book includes a comprehensive glossary and detailed notes for further study.