The Truth About Trend Trading Stocks

Posted on August 26, 2008
Filed Under Share Trading |

Before you can start using trends to guide your stock trades, you must first understand what stock trends are. A trend is the direction the stock price travels over a given period of time. Stocks can trend up, which means the prices are going up. Or they can trend down, which means prices are dropping. There are both short-term and long-term trends in the market to watch out for.

That said, trends are pretty unpredictable. So you should be wary of the vast number of stock trading systems that promise to predict market trends using complicated indictors. Many of these systems promise to accurately predict what will happen in the market and when. Over time, these indicators will fail, because the only constant in the stock market is change.

The trend trading method of investing helps investors manage and minimize the risks inherent in the market. The method looked at three factors: the stock’s current market price, the current volatility of market, and the amount of money and equity the investor has available.

By assessing the market risks, an investor can make better decisions when it comes to buying new stocks. Generally, the investor will want to make a return of 50% or better on a stock purchase. It’s important to include in the risk assessment an evaluation of the investor’s equity. If you invest too much money, you risk losing too much too fast. If you invest too little, you limit your return on your investment.

The system of trend trading in fact sets general rules about when to buy, how much of your money to risk on each transaction, and the best way to get out when things are going good or when they are going bad. In other words: how to buy low and sell high more often than not.

Price, though, is always the primary concern. The system is necessarily based on the unpredictability of the market and the fact that the only thing that can without fail tell you what’s happening to the price of the stock is the current price itself.

To follow the trends, look for stock trading newsletters dedicated to trend trading. These newsletters are a great way for you to learn more about the method and its practical applications. But watch out for get-rich-quick scams and schemes offering to sell you information about hot stocks. Also, be aware that even the most successful trend traders can stumble along the way.

Don’t risk your money unless you personally understand the investment and the risks you are taking. This is your money. Don’t make rash or emotional trading decisions. By following the trend trading method in a careful and well researched way, you have a good chance of buying low and selling high more often than not. Happy investing!

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