How to Profit From Trends When Investing

The point of investing is to buy low and sell high to make money. Many investors use a growth strategy; they buy stocks that show the ability to increase earnings per share each year. Other investors buy undervalued stocks and wait for the market to fully appreciate them. This is called value investing. Using trends to profit when investing is just another way to buy low and sell high.

Difficulty: Moderately Challenging

Instructions

1. Save some cash and have it ready to invest. Online brokerages make it easy to open new accounts.

2. Look for trends. There are many ways to identify new trends. Newspapers can reveal current events that could impact the market. Industry trends in stock valuation or quarterly earnings can also be helpful. Also be observant of broader trends in culture, fashion and politics.

3. Buy stocks that will benefit from the trends that you have identified, directly or indirectly. Sometimes companies that benefit indirectly will be better buys because there is a delay before the market factors the new trend into the stock price.

4. Sell stocks when they are higher than when you bought them. Holding stocks too long is not consistent with trend investing, which is by nature a short- to medium-term strategy. Once the trend is factored into the stock price, you need to find a new justification for owning the company. Otherwise, take your profit and move on to the next trend.

5. Think about other ways to profit from your trend. Perhaps the trend you identified will affect precious metals, currency, mutual funds or real estate.