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Is Trend Following The Right Strategy for You?

One investment system for earning profits on the stock exchange is trend following.  In this system you wait for a trend to create itself and then following it, timing both your entrance and exit scrupulously.  It’s a system that works in upturns or downturns in the market.  Instead of attempting to forecast the trends, trend followers go with trends that are already established.  The sum to be invested is set by the size of the trading account and how stable the issue seems to be.

Click here to see a trend following strategy that generated 48% return last year.

The systems that monitor trend following are pre programmed to exit if there is 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.

The most significant indicator for a trend supporter is cost.  He may take other things into account, but price is the ruling factor.  The timing of the trade is the second important factor, while it is less significant than the amount of the trade.  Before the trader buys, he’s got an exit strategy prepared knowing when he’ll sell whether the trade is rewarding or not.  The software allows for a stop loss to be set when the loss reaches the maximum satisfactory amount. 

These traders use their software to test trades before investing.  The software can judge the risks against the potential benefits of the exchange.  The numerous factors relevant to the trade are programmed into the software and the trader makes his decision based totally on the outcome of the test.

One issue with trend following is the impact that unanticipated events can have on the market.  Political upheavals, natural disasters and other events can effect the market in both positive and negative methods.  When Hurricane Katrina cause large damage to grease rigs and pipelines in New Orleans, the price of oil and gasoline skyrocketed in the expectation of deficits.  Although no severe shortages took place, stockholders and trend followers, in both the stockmarket and the commodities market, kept the price of oil elevated for months after the event.   

The stock exchange is a gamble, though if you know the way to play the market, you get far better chances than in Vegas.  Trend following is one method which has proved successful for many investors, but it shouldn’t be a trader’s only strategy.  By mixing trend following with other proven methods you will maximise your gains and minimize your losses.  A diverse portfolio together with different techniques is the simplest way to beat the market. 

In the stock 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 methods you employ to maximize your gains and minimize your losses.

Learn how you can apply trend following to ETFs and generate great returns with low volatility.

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