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Sunday, July 26, 2009

Is Trend Following The Right Strategy for You?

By Don Peterson

Trend following is a stock exchange method that takes virtue of both the ups and downs of the market. It is a technique that employs risk management to minimize likely losses. Traders who employ trend following enter the market after a trend has been settled, they don't attempt to foretell trends. They figure out how much to take a position in a selected issue based primarily on the size of the trading account and the steadiness of the issue.

Most trend followers invest in sophisticated software that can be programmed to exit if the trend changes all of a sudden. Then the traders do nothing and see if the trend reasserts itself before reinvesting. This is about following the already established pattern of certain stocks.

Price is the 1st rule of trend following. Other indicators aren't important, although they are not entirely overlooked. The second factor is the choice of how much to trade. The timing is less important 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 profit-making. Finally, you must set a stop loss for the maximum sufficient loss.

Before entering a trade, most trend followers will test it on their software so they can guage the probable risks and gains. The software is programmed with various factors relating to the particular trade. The trader then decides if he should make the trade under consideration.

One difficulty with trend following is the impact that unforeseen 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 large damage to oil rigs and pipelines in New Orleans, the price of oil and gasoline soared in the expectation of deficits. Although no severe dearths happened, investors and trend followers, in both the exchange and the commodities market, kept the cost of oil elevated for months after the event.

The stock market is a gamble, although if you know how to play the market, you get better odds than in Vegas. Trend following is one strategy that has proved successful for many investors, but it shouldn't be a trader's only technique. By mixing trend following with other proved methods you'll maximise your gains and minimize your losses. A various portfolio along with different techniques is the simplest way to beat the market.

I you do not have a plan and the right data when you enter the market, you will almost certainly lose money. Learn all you can and employ trend following with other proved techniques and you'll make the maximum of your investment greenbacks. - 23212

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