Trend Following

Trend following is the strategy of the stock market in which investors use long term calculations and follow the market trend. They make careful note of various factors like upswing or down swing in the market. The traders follow the market trend and try to gain profits in both the trends, upwards and downwards.

There is a systematic approach behind it and they use the principles of channel breakups, moving averages, and prevalent market calculations. It is a diversified, long term and a reactive approach which is very systematic in nature. The traders are the followers of the trend. They don’t forecast or predict any trends; they just leap into the trend and make profits.

The volume of trading (i.e. the number of shares a trader can buy or sell) depends on how big an account he has. Whenever there is any difference in the price there is a rise or fall in the trading of shares. A negative movement of the price sees the exiting of the traders whereas a positive movement sees many new entrants. It has been noticed that a trend followers earning is always higher than those of a trader who goes against the tide, and also above his overall loss.

The trend followers do not enter the market in the initial stage, when there are small players in the market. They start dealing once the trend is established and there are risks involved of a change in the pattern of the trend. There are many misleading false swings in the market known as whipsaw trades which may mislead the trader following the trend blindly.

A trader should follow the trend in the market, what is really happening in the market and not what may happen in the market. No matter what the others may advice, it is safest to go with the trend. You must decide how much you want to trade. You should always aim at cutting your losses. Hence when there are great upheals and swings in the market you should deal in smaller volumes and play it safe. There is no need of taking unnecessary risks.

All said, it is difficult to maintain emotional control and disciple and maintain one’s sanity through the various upheals of the market. The traders must be prepared to face these market swings and take it in their stride and make adequate preparations.