1 0 Tag Archives: style of investing
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Long Term Trend Trading

There are several different methods of investing in stocks and trading in stocks. One popular tactic is trend trading of stocks. Many people use this kind of stock trading, for example investors who see trends as beneficial sources of profit.

The trader should select one stock or a group of several stocks to focus on, just like he would with any other investment strategy. Factors to take into account include market movement and trading volume. After the trader selects a stock, he should analyze its price movements. To qualify as a trending stock, it must be moving in one direction continuously over a set period of time. This depends on the period of time. Short term trend traders can use days or weeks, but for long term trend trading, months or years are better.

The most significant thing in trend trading is that the price movement should display a momentum in a particular direction. The direction of price movements may be upwards or downwards but it should be consecutive or continuous. Using this method, you expect the price of a stock, which has gone up in the last two days, to continue to go up in the next few days. Similarly, if the price was going downwards, it should continue to go down in its momentum.

Once you have figured out the trending direction of your stock, you should buy it at its prevailing price and hold it for as long as the trend continues in its first direction. Once the trend reverses and the stock moves in the other direction, sell it as soon as you can; do not hold it any longer. If you continue to hold it after it reverses its direction, you may lose not only your gains, but your overall investment as well.

Another important principle in trend trading is to stick to your time frame. For instance, if you have bought a stock that is trending up on a monthly basis, you should only check its monthly performance by tracking monthly closing prices. Any fall in price within a month should be ignored. The price may fluctuate weekly but you should stick to the monthly trend. If you have bought a stock that is trending up over the previous weeks, you should ignore the daily ups and downs and monitor only the weekly closing price.

This is not true that only short-term traders indulge in trend trading. Even for those who have been investing in stocks for a longer time frame of months or years too can apply this method of stock trading to their advantage. It doesn’t matter whether you are investing for short term or long term, it is certainly one of the attractive tools available to you. But, this method requires that you monitor the market on a continual basis to take advantage of it. It is not for those people who invest and forget.

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05. Jan, 2011
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Momentum Trading Style

Momentum trading is a style of trading that is also known by another name, swing trading. Traders who use the momentum present in markets to place trades do so by riding price as it swings up and down with the trend over time. This form of trading is frequently used by professional bankers with deadly accuracy, but you will rarely find any private traders using this style. While other more inexperienced traders try to trade lower time frame charts, bankers are swing trading on the hourly, four hourly and daily charts with much better results. They are able to trade with much better accuracy because of the low level of risk offered by momentum trading and because of the unique trade entry criteria that is commonly used in momentum trading.

It is safe to say that most traders who trade anything less than an hourly chart will not last long in any financial market. This isn’t to say that there are so successful scalpers out there, but the majority of people looking to get involved in trading will quickly become frustrated and give up. Even if they do manage to make a profit, it will not be long lived. Scalping or any other similar low time frame kind of trading is worse than taking your money to the casino to gamble. Momentum traders avoid this risk by trading the higher time frames. These time frames filter out much of the market noise and give traders a much clearer and more precise picture of what the market is really doing. When trading the higher time frames trend identification is much easier, price action is more reliable and even indicators become more precise in what they plot about price. How can anyone stand to make a profit trading five minute charts where there are trends that last mere minutes and sometimes just seconds? It is easy to see why momentum traders avoid the risk associated with these low level time frames and only trade the hourly and daily charts.

The other advantage momentum trading offers is that of the trade entry criteria. Most private traders usually get in just at the top of a run before price crashes and goes against them. This rarely happens to bank traders and that raises the question of what is different about their trade setups that makes them so profitable? One key and crucial thing momentum traders are looking for is market value. Value here meaning that the instrument being traded needs to be at a price that is below what everyone else paid. Put another way, bank traders wait for price to retrace against the trend and then enter just before it resumes movement in the direction of the trend. By doing this they are paying a price that is lower than what the majority of other traders paid. They are avoiding getting in just at the top before price crashes, if it does turn against them. The benefits of waiting for value to be present are twofold. The first is that since you get in at a better price you stand to make more money, even if price moves only a little. The other advantage is that because you got in at a lower price you stand to lose less money if price goes against you. Waiting for value to be present can turn a losing trade into a winning one and a winning trade into an enormously profitable one.

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26. Sep, 2010