Trend Trading Strategy
Trend Trading Strategy
Virtually all investors do not realize that trend trading actually is trend following.
Let us separate the phrase Trend Following. The first part is trend. Just about every trader needs a trend to make money. When you contemplate it, it doesn't matter what the strategy is, if there's not a trend when you buy, you will not be able to sell at higher prices. The second part is following.
Trend Following seeks to seize the vast majority of a trend, up or down, for profit.
An investor has a defined plan or strategy to put capital into a market in order to achieve a single goal: profit. Traders don't care what they own or what they sell so long as they finish up with more money than they started out with. They are not investing in anything. They are trading.
Trend followers are really a variety of technical analyst that neither predicts nor forecasts. As opposed to seeking to forecast a stock's direction, their technique is to react to the market's movements whenever they occur. Trend followers react to what is happening as opposed to predicting what is going to happen. This permits them to focus on the market and not get sentimentally involved.
Price analysis hardly ever enables trend followers to enter at the actual bottom of a trend or exit at the actual top.
Trend followers bring in awesome returns because their selections are ultimately based on one piece of core information: price. The continual barrage of fundamental data, such as price-earnings ratios, crop reports, and economic studies, plays into traders' tendencies to make trading more complicated than it needs to be.
Stick To The Trend
Don't try to speculate how far a trend may go. You simply can't. You shouldn't read PR releases and try and guess the length of time the trend should go. A market is going to go the place where a market is going to go.
If a stock goes from 20 to 18, a losing trader who examines fundamentals will think maybe it's a better buy. But a winning trend trader will figure he must have been wrong about something and get out.
They already know that attempting to forecast the beginning or end of a trend is futile. When trends begin, they often times arise from a flat market that does not seem to be trending in any direction. The idea is to take small bets early on in a market to see if the trend does indeed mature and get big enough to make money.
Really big losses rarely befall a trend follower since he decides to eliminate or reverse his position as soon as the market goes against him. A great deal of little losses are inevitable.
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