Thursday, October 23, 2008

Trading With the trend

No matter how many times you have heard it, it is worth hearing it again. You must trade with the trend and not against it if you ever plan on being successful in the stock market.

It can be difficult to trade in the same direction as the market especially when prices have fallen so much. You will find times when the average stock is trading at 70 or 60% of what they were a year ago. That makes it extremely hard to assume they will keep falling.

It builds up the urge to go and buy all these stocks at a discount and wait for the rally to start. But you cannot do that. If the market is down trending it is likely going to keep down trending.

The worst losses I ever experienced was when I though the market had to start turning around. On the other side the best profits I ever experienced was when I traded with the trend even when I thought it would turn around.

There are too many people out there trying to buy at the bottom and sell at the top and getting burnt. The reality is that there is no way of telling where the bottom or top are.

If a stock has fallen 50% there is always room to fall. I’ve seen plenty of stocks fall 90% in a year. They harmed every bottom picker who entered them. I have also seen many companies that “Aren’t going anywhere” file for bankruptcy after falling.
On the other hand stocks that are trading at 2, 3 or 4 times what they should be trading at do not necessarily have to fall. Who knows the stock could be on the verge of making the biggest rally it has ever seen.

In short stay with the trends, don’t every try to fight it and you will be much better off.

For more information about a stocks trend visit

For more information about the stock market visit

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