Article Advise

submitted: Aug 26th 2008 | by: JesseProfit | Total views: 1 | Word Count: 493 | |

Before you can start using trends to guide your stock trades, you must first understand what stock trends are. A trend is the direction the stock price travels over a given period of time. Stocks can trend up, which means the prices are going up. Or they can trend down, which means prices are dropping. There are both short-term and long-term trends in the market to watch out for.

Trends are inherently unpredictable and a lot of stock trading systems have sprung up around wild and wooly indicators that "everyone knows" predict not only the way things will happen in the market, but also when. Hard and fast indicators like these are garbage in the long run as the only constant in the stock market is change.

Trend trading, however, is not a stock trading system or scheme. It's a method that helps the investor manage the risk that is inherent in the stock market. It takes into account three factors: current market price of the stock, market volatility (the size of past and current trends), and the amount of money and equity in the investor's account.

It's really quite straightforward. Trend trading helps the investor make informed purchasing and selling decisions. It helps the investor know when to get into the market. A good investor should look for opportunities that provide the chance of getting a return of 50% or more on the investment. By evaluating the investor's equity, the method helps the investor decide how much of that stock to purchase. If the investor purchases too much, there's the risk of losing too much over a short period of time. However, purchasing too little limits income gains.

The trend trading method helps the investor to buy low and sell high. It does this by setting some general rules regarding when to buy a certain stock, how much money to risk on that stock, and the best time to sell (whether the stock is doing great, or if it's tanking).

Never forget about the unpredictability of the stock market. The only thing that any investor can know for a certainty is the current price of the stock. Everything else is an unknown. That's why you will want to limit your risks by making thoughtful trading decisions.

There are stock trading newsletters dedicated to this trading scheme that can help you better understand the practical applications of the basics of trend trading stocks. But beware fly-by-night operations looking to make a quick buck by selling bad info. And also beware the stumbles of long-successful trend traders as their long success can lull you into a false sense of security.

Don't risk your money unless you personally understand the investment and the risks you are taking. This is your money. Don't make rash or emotional trading decisions. By following the trend trading method in a careful and well researched way, you have a good chance of buying low and selling high more often than not. Happy investing!

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