How to Use Trend Following in Day Trading
Trend following is an investment strategy that uses long-term trends in various financial markets. Investors can take advantage of markets that are both rising and falling to try and make a profit. Traders who use a trend-following strategy do not try to forecast or predict markets or price levels. They hop on a trend and ride it.
Other People Are Reading
Instructions
-
-
1
Practice risk management. Preserve your capital until you see favorable price trends appearing and then decide how much to buy or sell based on how much money you can afford to lose.
-
2
Buy breakouts. When a stock begins to make an upward move, it is more likely than not that the price will continue to go up in value. This is the time to buy.
-
-
3
Follow the price. You don't have to know a lot about the market to compare and study prices and measure price movements. Base your trading decisions on the current price of a stock, not on what it may or may not do in the future.
-
4
Expand your horizons. It is not unusual for many traders to focus on only one market. Many investors trade securities because that is what they are familiar and comfortable with. The trend-following method can also be used very successfully in the currency and futures markets.
-
5
Expect market ups and downs. You must practice self-discipline to stick with your position when a trend momentarily isn't going your way.
-
6
Consider purchasing trend-following software. There is a slew of it out there. The software can help you locate and analyze trend days, find profitable trading patterns and send you trade signals.
-
7
Be satisfied with small, but consistent, profits. However, you'll want to make sure that your average loss is smaller than your average win.
-
1
Tips & Warnings
There are many times when very few stocks are trending up. If that is the case, your only opportunity as a trend follower may be to sell short. Although shorting stock is risky, it can also be very lucrative.
Day traders may find it difficult to use trend-following models. When you day trade, you must liquidate your position at the end of the day. You cannot let profits or losses run because of the time limits of day trading. Trends may not have had time to fully develop in such a short time frame. Day traders run a risk of losing money using this method.
