How to Follow the Trend: Short Term Swing Trend Trading
This strategy is often applied by macro fund managers, trend follower funds and an array of other players. To some extent, most traders and investors are trend followers, the difference lies in their approach to analyzing the market.
By definition, in the trend following strategy, traders and investors simply stay the trend in the underlying market until it ends. It's a straightforward concept, however it is also one that novice traders often underestimate by miles in terms of the degree of skill needed to successfully execute the strategy.
They rely on government policy, economic projections, price-earnings ratios, and balance sheet analysis and so on to make buy and sell decisions. The religion of fundamental analysis is about telling stories—stories you will instantly recognize: Crude oil traded near an eight-week low because of concern fuel demand will be curbed amid signs of slowing economic growth in the U. History suggests the time is right to buy Dow stocks.
Novice traders look at a trend, see a low point and a high point, and think to themselves, how hard can it be to simply buy when the trend goes up and sell when it changes?
Ah, there's the rub, and let me fill you in on a secret: picking absolute lows and highs in trading and investing on a consistent basis is impossible.
The trick lies in having a set of rules and technical tools that if and when triggered, give the trader the nod that his entry point, stop loss, or profit target has been hit. The second and more difficult part is training ones brain to actually take the trade when the signal has arrived, trading trend trading leave second guessing, doubt, fear and greed checked at the door — each and every time. Consistency is the key to success here.
Just be sure to eliminate losing trades quickly and without hesitation. The next trend trade WILL be coming soon. Also, keep in mind that a trend is broken or weakening when When a moving average or trend line breaks, then the following support zone below gets targeted.
Back in October for example, when Google stock broke below its 50 and day moving averages, the next support trading trend trading the trend line, which ended up holding like a champ, making me go back to a long position in the stock. As the stock pushed back above the moving averages, I added.
Trend following requires patience and discipline, and adherence to the aforementioned golden rules.
Serge Berger has been an active trader since During his career he has been a financial analyst, dealt in fixed income instruments at JP Morgan, and was a proprietary trader in equities, equity options and futures. Find out more about Serge at his website.