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How to Use Trend Following As a Market Strategy

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  • How to Use Trend Following As a Market Strategy

    The strategy of trend following goes against the old Wall Street Philosophy of buy low and sell high. It takes benefit of the market whether this trend is up or down. Traders using the trend following technique begin trading after a trend is established. Other traders try to envision what the market will do, trend followers wait for the market to do it. The dimensions of the trading account and the volatility of the issue are the primary determining factors in how much to invest.

    The systems that monitor trend following are pre programmed to exit if there's a surprising downward turn to the trend. The trader will wait and re-enter if the trend re-establishes itself. The point of trend following is to follow the trend after it is established.

    Price is the first rule of trend following. Other indicators are not important, though they are not wholly disregarded. The second factor is the choice of how much to trade. The timing is less vital than the amount of the trade. Then there's the exit strategy. When to get out if the trade is unprofitable or if the trade is profitable. Finally, you may set a stop loss for the maximum acceptable loss.

    Trend disciples use software to back test a trade that's under consideration. They can then evaluate the technique based primarily on the test. The software evaluates various sides of the trade under consideration. The trader can look at the results and finely tune his approach.

    One issue with trend following is the impact that unlooked for events can have on the market. Political upheavals, natural disasters and other events can effect the market in both positive and negative strategies. When Hurricane Katrina cause massive damage to grease rigs and pipelines in New Orleans, the cost of oil and gas soared in the expectation of deficits. Even though no severe deficits happened, investors and trend followers, in both the stock market and the commodities market, kept the cost of oil raised for months after the event.

    All market investments are of a hopeful nature. The strategy of following trends is one of many employed by backers. It allows investors to milk downward trends as well as up swings and turn a profit in any sort of market. Trend disciples hold stocks longer than those who use hot stack strategies in which the buy and sell might be concluded in a couple of hours. They also milk complicated software which can assist them in making there choices.

    In the market there is no warranted strategy for making profits. It is necessary to have a plan or you will actually lose money. Trend following should by one of several techniques you employ to maximise your gains and minimize your losses.

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