Welcome to Trend Rider, a trading system for the stock market. The trend is your friend and trend trading can be the most profitable form of trading. Trend Rider is trend trading and swing trading. It is all about entering jauntily the next trend. Let’s start with the first question in trading, which is:
The answer is: It depends, but not on the situation. Instead, it depends on the trading system you use, which should be clearly aligned to one or the other style. In other words, one can make money in the markets with cyclical and anticyclical systems. Just don’t try to mix one method with the other.
Almost by definition procyclical behavior is mandatory for trend traders. The Trend Rider trades at the current high, for short-term entry situations and also for longer terms. This has two advantages:
The longer trend and fundamentals do matter for a sound system. Stocks could be traded solely on a day trading basis, but that means giving up most of the possible gain. The real money is made by holding when things go well and riding a trend for many month that at its best finally overshoots by a wide margin.
That is why fundamentals are important. Like prices, which run away once they have gained momentum, revenues and earnings of companies that rise do this often with a remarkable constancy. We have a growth stock. It pays off to take rising revenues into account. Over all concentration on such stocks will yield better results even if the targeted time horizon of holding periods is much shorter.
One of the beauties of stocks is that they are essentially options but without the expiration date. At least this is true for stocks on the move. It is possible that they multiply their value by a large factor, and yet, they can’t go below zero. This alone is highly interesting, because it offers the possibility of a random trading system, just driven by stronger moves upwards than downwards. Of course this effect only becomes noticeable if you hold a stock for a longer time. Day traders go away empty handed.
Another fine thing about stocks is that there are stock markets, by which I mean that there are thousands of possible trading candidates. Compare that to Forex or futures. Together with ETFs, some of them being short-instruments and others matching foreign markets or commodities, there is always something to pick. Without the need to go short you can still enjoy the option-characteristic of stocks.
Strict rules in a trading system are important because there is psychology involved. Experience tells that a system that concentrates either on cyclical or anticyclical methods and doesn’t try to mix them, is far more easy to apply. A system whose elements are uniformly supporting either one or the other style is enormously helpful. There are more than enough reasons to get confused by the markets alone. Psychology is the deep problem of a trader. He needs a trading system as a foothold for combating uncertainty.
The most basic rule for the concrete trading is the stop-loss. This is the ingredient that makes cyclical trading what it is, meaning it is far more than just keeping losses in check. If you enter a position and don’t get stopped out, you are on a trend. If you get stopped out, the trend has come to an end. This is of course a simplified and probabilistic view, but it shows how a rule of a trading system steers the trader into the right direction.
For anticyclical investing a stop-loss is devastating, because it is contradicting the idea of buying as cheap as possible. This is a fine example where in trading the right element can be in the wrong system.
A trading system must be self-consistent. All parts of the system must fit together. Something that doesn’t fit, while it may be the right thing for another system, is like a grain of sand in the machine, the money machine that is. So, is there a money machine? Not only that there is one, there must be one, otherwise you could have no system and trading would be only gambling.
Of course this machine can’t serve everyone. As common sense tells, there will only be few who can exploit a specific system. A system that is trading the high and overshooting prices has fortunately a relative large capacity and is able to support quite some people’s desire for success.
Trading at the high means also something else. The Trend Rider system only buys stocks long and doesn’t go short. Together with the rules to allocate the trading capital to the right number of stocks and not to use margin, at least not overnight, it more or… Read more…