The Pros and Cons of the Trend Trading Strategy

1. The Pros And Cons Of The Trend Trading Strategy To begin with, what is a trend trading strategy? Trend trading is a trading style that seeks to collect gains through the analysis of an asset's momentum in a particular direction. When the price is moving in one overall direction, such as up or down, that is called a trend. Essentially, an uptrend is a series of higher swing highs and higher swing lows. A downtrend is a series of lower swing highs and lower swing lows. Most trend trading strategies assume that an asset will move in the same direction as it is currently trending. Strategies are flexible, variable and are used by short-term, intermediate and long-term traders. According to Investopedia, trend traders typically make use of strategies such as price action, as well as other technical tools to determine the trend directions. In this article, we will look at the advantages and disadvantages of following trend trading strategies: First, let’s look at the advantages. Trends Can Be Caught from the Beginning Considering that trends can last for a long time (going into years), catching most trading trends early when the equity market is gaining momentum will prove to be beneficial in the long run. Doesn’t Require Lots of Time As extreme precision isn’t a critical factor, traders can even place orders even when the market is closed. Some orders can even be placed once a week. Thus, even if an investor is otherwise very busy, their time would not be consumed by following some trend trading strategies.

2. Control Losses Early To be able to cut losses early while maximising potential is the aim of the trading game. If trend trading strategies are followed correctly, one can simply exit a trade when it goes against them and save capital for the next move. But while following trend trading strategies can be profitable and beneficial, what are some of the disadvantages? Identifying True Trendsand False Trends Since markets spend most of their time consolidating, it means that there will be long periods of times where no trend really gains traction. In most cases, investors might find that their identification of trends is flawed and this will affect ultimate returns unless they stick with a trend for a long time. Handling the Ups and Downs Apart from studying trend trading strategies and gaining experience in playing the trading game, an investor has to also remember that a calm, collected and sensible mindset is needed for successful trading. For example, when looking at which stocks to buy with regard to what trends to follow, one has to cultivate a level headed approach and not be bogged down or too enthusiastic. Need to Always Be on Your Feet If an investor never wants to miss an opportunity, s/he will have to be constantly watching for trends because it could be any one trend that makes the difference. The best way to survive in such an environment is to think out-of-the-box and build an innovative and unique trend trading strategy. Of course, this can happen after an investor gains some trading experience and also seeks the guidance of advisors who can help him or her formulate such a strategy. Trend following is one of the most successful and popular ways of trading and in order to beat the competition, a fresh approach is a good way to go. Get in touch with us to create trend trading strategies, and we will also share technical analysis that will further help solidify your investment plans.