Trend Trading
When I first started trading in the stock market I wasn’t sure what to do. For years I’d had a portfolio that was managed by a broker, but after the market went into free fall last year and my investments lost half their value, I decided to manage it on my own. I knew I wanted to create a well diversified portfolio, but I also I wanted to be an active trader. What was I to do? I didn’t want to be one of those guys chasing after the latest hot stock. I had seen far too many people get burned chasing hot stocks. That’s when I read an article about trend trading.
I was only vaguely familiar with the concept of trend trading, so I made sure I did my research. I found that trend trading is a stock trading strategy that relies on patterns in the movements of stocks. People who swear by this method claim that each stock trades in more or less predictable patterns each and every day. For example, if on the first day a stock opens at 74, trades all the way up to 77, and then closes the day unchanged at 74, we should expect to see similar movements on the second day. So, if on the second day the stock sells at 74, we should buy it because that represents value. And when the stock moves up to 77 we should sell it because that is at the top of its current range.
After a few weeks of watching the trading patterns of my favorite stocks, I decided to give trend trading a try. Although I wasn’t right one hundred percent of the time (who ever is?) I found that stocks really do trade in more or less predictable patterns and usually trade within a certain range. While some of the more volatile stocks trade in ranges of up to 7 points a day, others only move a point or two in a day. I applied this simple strategy and bought stocks at the low end of their range and sold them at the high end.
In only a few months of trend trading I had made more money than I ever had in the stock market. When I tell my friends the secret of my newfound success on Wall Street, they don’t believe me. They don’t believe that anything could be that easy. “I didn’t either,” I always say, “but it is.”
