Many traders don’t know that trend trading is really trend following.
Why don’t we separate the term Trend Following. The first part is trend. Just about every trader requires a trend to make money. If you ponder over it, regardless of what the strategy is, if there is not a trend as soon as you buy, then you’ll struggle to sell at higher prices. The second part is following. Trend followers have to wait for the trend to establish itself, then follow it.
Trend Following seeks to catch nearly all of a trend, up or down, for profit.
An investor has a specific plan or technique to put capital into a market in order to achieve a single goal: profit. Traders will not care what they own or what they sell so long as they end up having more money than they started out with. They’re not investing in anything. They are trading. It is really an significant distinction.
Trend followers are really a style of technical analyst that neither anticipates nor forecasts. This kind of technical analyst is based on price. Trend followers form the group of technical traders that use this type of analysis. Rather than seeking to predict a market’s direction, their method is to respond to the market’s movements when they happen. Trend followers respond to what has happened instead of predicting what will happen. They attempt to keep their techniques based on statistically authenticated trading policies. This enables them to focus on the market and not get emotionally involved.
Price analysis never enables trend followers to enter at the precise bottom of a trend or exit at the precise top.
Trend followers create awesome returns because their conclusions are ultimately based on one piece of core information: price. In an increasingly uncertain and, lately, downright unfriendly world, it is very efficient and effective if our decision-making is founded on this single, uncomplicated, reliable truth. The constant barrage of fundamental data, for example price-earnings ratios, crop reports, and financial studies, plays into traders’ tendencies to make trading more complicated than it needs to be.
Stick To The Trend
Do not attempt to speculate how long a trend ought to go. You cannot. You should not read PR releases and try and speculate the span of time the trend ought to go. Price makes news, not the other way round. A market will go the place where a market is going to go.
The thought of price as the trading cue is just too simple for traders to accept.
If a stock goes from 10 to 8, a losing investor 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.
Trend followers are in the moment. They already know that attempting to predict the beginning or end of a trend is futile. When trends begin, they frequently arise from a flat market that doesn’t appear 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 sufficiently big enough to make money.
Really big losses seldom befall a trend follower since he decides to eliminate or reverse his position as soon as the market goes against him. Plenty of little losses are inevitable. The rationale for hanging in is that any price move may be the beginning of a trend, and the occasional big breakout justifies a string of small losses.