Trend following trading
Stock market legend Paul Tudor said that’ trend
following is the easiest way to make money and reduce trading risk. The
short-term traders and day traders would lose their money very quickly in the
trading. The main reason is whose trading setup on a short-term basis.
On the other hand, long-term traders and investor are
setting up their trading for a long-term basis. The trend-following fundamental
is going with the overall market trend because the market is going either way,
as a trader not possible to find the small changes in market movement.
Find the market
trend
The stock market is dividing into three types of
market trends, such as the bull market, bear market, and sideways or
range-bound market. The trend-following core point is if whatever direction
goes along with that, don’t go against the market. To find the overall trend,
first, we need to understand differences between the bull market and bear
market.
Bull
Market
|
Ø IF
THE MARKET IS P/E ABOVE 20 IS CONSIDER AS BULL MARKET
Ø IF
THE INTEREST RATE CYCLE FAVOUR TO INVESTOR THAT WILL TURN TO BULL MARKET
|
|
•
If market is trading above 20 pe ratio that is consider as bull
market.
•
Interest rate cycle will be
favor to bull
|
|
Ø IF THE P/E RATIO BELOW 18 IS CONSIDER AS BULL
MARKET
Ø IF THE INTEREST CYCLE UN FAVOUR TO INVESTORTHAT
WILLL BECOME AS BEAR MARKET
|
Now
you understood how to find the overall trend. The first thing is whether it is
a bull market or bear market. According to the Elliot wave theory, the market
does not move a 90-degree angle; many corrections will occur while running,
even if it is moving in one direction. An experienced trader would deny the
short-term correction, and they will only focus on the long- term trend. If he
assumes that' perhaps might happen profit booking or market correction may
arrive very soon, he will stay away from the market until getting an excellent
trading opportunity.
Trend
change
Anyway, finding the trend change is certainly
challenging work for everyone. Trend change will happen for various reasons.
Notably, macro factors and global financial market events will change
investor's moods as soon as.
A small investor and novice traders cannot realize
these fundamental changes. Macro data and govt policies would make dramatic
changes in the financial market. So, in this situation, use the technical
analysis and read the market sentiment.
Generally, the stock market is moving on an
expectation basis. Corporate earnings, govt policy, and macro data always make
a higher expectation. Crude oil price spike, dollar index strength, and global
financial market crisis to leads stock market collapse.
conclusion
Everyday lot of the news coming into the stock market,
such as exogenous news and about individual entities; however, all market
participants would not be able to make the right decision because how is going
to the stock market behave to specific reports. Novice traders will get the
excitement while news basis stocks move unexpectedly, start to enter in that
particular stocks, as a result of a significant loss. They will lose their
principal amount in a few trading due to a lack of knowledge and greed.
Trend following is a trading discipline, that means go
along with market at where all is moving. Traders may have not in-depth
knowledge about the stock market. But it will lead to taking the success path.
Now you understood how to find the overall trend. The
first thing is whether it is a bull market or bear market. According to the
Elliot wave theory, the market does not move a 90-degree angle; many
corrections will occur while running, even if it is moving in one direction. An
experienced trader would deny the short-term correction, and they will only
focus on the long- term trend. If he assumes that' perhaps might happen profit
booking or market correction may arrive very soon, he will stay away from the
market until getting an excellent trading opportunity.
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