Almost all stock traders do not understand that trend trading is basically trend following.

Let us examine the phrase Trend Following. The first part is trend. Just about every stock trader needs a trend to earn money. When you think about it, regardless of what the strategy is, if there\’s not a trend as soon as you buy, you will struggle to sell at higher prices. The second part is following. Trend followers will need to wait for the trend to establish itself, then follow it.

Trend Following seeks to catch the majority of a trend, up or down, for profit.

An investor has a specific plan or process to put capital into a market in order to achieve a single goal: profit. Traders never care what they own or what they sell as long as they end up getting more money than they began with. They are not investing in anything. They are trading. It is an significant distinction.

Trend followers are a sort 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 who use this type of analysis. As opposed to attempting to forecast a market\’s direction, their method is to react to the market\’s movements whenever they happen. Trend followers respond to what has happened as opposed to predicting what is going to happen. They attempt to keep their techniques based upon statistically validated trading policies. This permits them to target the market and not become emotionally involved.

Price analysis never makes it possible for trend followers to enter at the actual bottom of a trend or exit at the actual top.

Trend followers create amazing returns because their conclusions are inevitably based on one piece of core information: price. In an increasingly uncertain and, nowadays, downright unfriendly world, it is very efficient and effective if our decision-making is based on this single, uncomplicated, reliable truth. The constant battery of fundamental data, for example 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 guess how far a trend may go. You cannot. Don\’t bother to read PR releases and try and speculate just how long the trend will go. Price makes news, not the other way round. A market is going to go where a market is going to go.

The idea of price as the trading cue is way too simple for traders to accept.

If a stock goes from 15 to 12, a losing investor who looks at 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 trying to forecast the beginning or end of a trend is useless. 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 large 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. Many little losses are inevitable. The rationale for hanging in is that any price move may be the beginning of a trend, and the periodic big breakout justifies a string of small losses.

Author Bio: Mr. Jepsen is a 15 year technical analyst and teacher. To learn more about trend trading visit Trend Following

Category: Finances
Keywords: stock,trading,tutorial,lesson