Trend Trading
Trend trading is another investment strategy which takes advantage of the momentum of a market. Traders may either go long or short on trend trading and any financial market may be used for trend trading. This is what the LS Trader system is based on.
This strategy works by first identifying a market trend. A market trend is a continual upward or downward movement of a market. This movement needs to continue for a certain amount of time and reach a particular level before it is called a trend. Once it is identified as a trend, a trader will use the trend to trade and hopefully make a profit.
A trade is made on the trend and shares are purchased. The trader maintains the trade position and rides out the trend. As long as the trend continues, the trade carries on as well. Once the trend hits a reversal meaning the opposite direction, a trader sells and the profits are taken.
Trend trading involves certain strategies regarding risk management. Prior to making the trade, a trend trader will evaluate how many shares to buy or sell. This all depends on the condition of the trend, for instance if it is a strong identifiable trend then more shares will be bought or sold. The volatility of the market is part of risk management as well. If the market is highly volatile, a trader may implement a stop loss to prevent huge losses. By doing this, a trader is managing risks.
Trend trading requires a lot of knowledge about the market and a successful trend trader needs to be good at technical analysis. Technical analysis involves knowing the market prices and how each price affects another. Understanding the difference between just a gain in market price and a continual movement is critical to identifying a potential trend. Trend traders need to know what a resistance level is and what it means for a share when the price of the share hits this resistance level.
Trend trading is time sensitive. It is time sensitive because a trader must watch trend trades constantly because trends can change quickly. This is important so a trader can maximise profits. Another way trend trading is time sensitive is during trading. Trends in themselves are time sensitive. Timing is critical in trend trading and a good trend trader needs to understand timing in the market, thus knowing exactly when to buy or sell.
Trend trading requires a specific skill set. For this reason, trend trading is reserved for experienced traders.
April 13th, 2009
One positive about trend trading is that it is easy to find a way in and a way out without putting too much emotion into the decision. It is preferable however to try to get a profit out of the middle of the trend.
Trend trading does not guarantee success or huge profit, but it can keep losses fairly small if stock turns against you. Once a trend is broken however, it is time to get out. If the trend continues, a trader will realise value.
In order to define a trend, it is wise to look for stock that is consistently moving, or one that can touch a straight diagonal line. A trend breaks only when the moving average is broken, but until that happens, stock is said to be in the trend.
Anyone who follows Trend Trading can cut their losses and let their profits run. The only way to make money on the stock exchange is not to lose money. However, even if a break in a trend point can tell you when to exit; this is not a guarantee that you won’t lose money, it will ensure that your losses are small.
Trend Trading is possibly the best way to avoid excessive emotions because it avoids staying in the market as the stock drops and drops again. Trend Trading is not about an ‘it will recover’ mentality because a trader can get out anytime they want to. A trader with an ‘it will recover’ mentality should keep in mind that in order to recoup money from a market which has dropped by half, they need their stock to double in price.
Tags: financial trading, market trends, Spread Betting, Trading System, Trend Trading
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December 18th, 2008
If you are trading according to market trends, you are winning. It can be likened to whether or not you have enough fuel in your tank.
Understanding market trends will, without any doubt, dramatically increase your profitability. Good traders listen to what the market is saying, they don’t talk about it. They watch and analyse how shares are behaving, they don’t hypothesise or have personal opinions about how trends will act in the future. They just watch and wait.
Markets have reasoning, they are not usually chaotic, they are somewhat predictable and they follow stock prices. So, by applying a little marketing psychology they can be understood. It is a myth that past performance does not affect future performance. In a way this is true but it applies to long ago past performance and not recent past performance. Trends are persistent, if they have a history of being strong; chances are they will stay strong. It is far more likely that strong stock will stay strong, or indeed get stronger, as opposed to weak stock turning around, but even with the information a lot of traders till prefer to buy weak stock on the hope that they will become strong.
This kind of trading takes confidence and is what sorts the professional from the non-professional traders. But there is a word of a caution to the over confident who buy low and sell high. They don’t ‘trend spot’ because they have personal opinions on how they think a stock will perform. When a trader buys strong stock it is because they are following trends.
Tags: Financial Spread Betting, market trends, stock market trading, stock trading, trade markets
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