Trading With The Trend: A Dose Of Reality
Most of the time, you have to get a dose of reality and evade the world of predictions. Basically, there are 4 cardinal principles in every trading venture. They include trade with trend, cut losses short, let profits run, and manage risk. Every venture should consider these principles to pave the way for as valuable endeavor.
Trade with the trend coincides with your decision of how to initiate trades. Simply, you should always trade in the direction of recent price movement. You have to identify long term trend trading.
Trading has volatile prices. Mathematical analysis of data found that fluctuations are primarily random and comes with a small trend component. To those who like to venture in commodity trading in a methodical manner, scientific fact is crucial.
One good book to supplement your know-how in trading is The Four Cardinal Principles of Trading. “Of all the common market principles, I put ‘Trade With The Trend’ at the very top. It’s a lesson I’ve had to learn and relearn practically every year. All traders have the tools to find trends. That’s what makes it especially frustrating when we go contrary to the trend or when we try to pick tops and bottoms,” Jake Bernstein noted in the book.
He added, “It took me over nine years to realize that, although it may be a romantic and ego-satisfying goal, forecasting is not necessarily synonymous with profit. To anticipate trends is a difficult and often haphazard task, and it tends to lead to losses more often than profits.”
Russell Sands, in an interview with Commodity Traders Consumer Report, said: “The best approach is to be a long-term trend follower. Trend following is statistically valid in the sense that everybody has tested it for years and years, and it works. “I acknowledge that the market trends maybe 20 percent of the time and chops back and forth in consolidation 80 percent of the time. The trick is how to define where the trend starts and where it stops. If when a market does trend, you get in at the right time, ride that trend and then get out at the right time, you’ll make enough money to more than offset the losses you take during non-trending periods.
“Another part of the basic philosophy is that we don’t know when the market’s going to trend and when it’s not. In fact, we don’t know what the market’s going to do at all. We can’t predict anything it does. We don’t believe in predictions. Instead, we react to the market,” he concluded.
Reality check: Are you a trend-follower or a trend-setter?
Come to think of it, so long as you’re successful in your venture, the answer won’t really matter.
