The Truth About Trend Following You'll Be Glad You Finally Know
Many people are now escaping the confines of working for an employer by trading forthemselves from home on the Internet due to the freedom this gives them in terms of time and money.
Having tried intraday trading initially many traders later come around to trying trend following due to the huge gains to be made and other benefits with this approach.
The goal of this article is to explain what the essence of trend following is and to reveal its pros and cons in terms of how easy it is to be profitable and in fact to make huge gains, taking into account any potential drawdowns.
How you'll finally never worry about brokerage costs again is also explained and the degree of stress compared to shorter term trading is also revealed. Let's get started.
Essentially trend followers trade on the belief that prices in up trends will continue to go up and prices in down trends will continue to fall. This may seem strange but please bare in mind that the worlds best and therefore richest traders include trend followers. Next let's look at how easy it is to be profitable.
Well the first thing to say is that if you have the right proven and simple system with clear trade entry, trade exit and money management rules you should be profitable if you trade with level-headed discipline.
At the outset you need to know that the ratio of successful trades to unsuccessful trades is lower with trend following than with some other types of trading such as swing trading. However, it's very important to realise that winners can be huge when trend following, running for years and far, far outweighing any drawdowns. So what does this mean for us as traders?
Well you don't need to have a lot of initial trading capital, especially if you use a spread trading account as these companies have zero commissions for life and accept tiny trades. Traditional brokerages on the other hand generally use standard 'lot' or mini-lot sizes which are bigger than the smallest trades placed at spread trading companies.
Why your traditional broker will not promote the benefits of trend following:
As well as spread betting or spread trading accounts being ideal if you're a trend follower instead of using a traditional broker, even if you still decide to use a traditional broker when trend following, you'll be paying them less brokerage fees obviously due to making less trades.
When trend following it's important not to place trades that are too large for your account. So trades of five to ten percent of your entire trading capital is about right.
But what needs to be said about how stressful it is?
Well as you may have guessed, trend following is far less stressful than shorter term trading because you place fewer trades and it's easier than predicting all the choppy, short term noise and fluctuations in a market's prices.
To summarise, trend following is how the big players trade, at least for some of their trades. My advice is to trade with the trend and trade with the big players.
by: Philip Birchley