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Momentum investing is an interesting strategy. It involves buying a stock that is trending up, simply because the stock is trending up.
A trend trader will then hold onto the position until it starts to turn around. Once it does start to turn around however, a trend trader will exit out of the position.
It is a simple strategy and for this reason most people are ready to write it off and call it a “get rich quick” strategy that will in the long term lose you money. People seem to think that trend traders are the people who get in at the top just before the market crashes.
This is not true. It is proven that stocks which are trending up are more likely to continue that trend in the future. It is true that stocks do tend to get overinflated and crash, but who knows when that will happen. I have seen plenty of stocks that were considered to be overvalued go up 50% in the next 2 months and go up after that. You simply do not know when a stock will turn around so why no hold onto it and keep some stop losses in place just in case.
Here are a few reasons why trend trading can be so successful.
1. Not Speculative
A trend trader does not need to speculate in the market. Instead of buying a stock and hoping that something will turn around trend traders will simply buy a stock that is going up and hold onto it as it is going up. This is not speculating, it would be speculating it you had called the top and gone short, but to assume that it will continue what it has been doing in the past is just common sense.
2. It’s Simple
Another advantage of trend trading is its simplicity. If a stock is going up, buy it. If it is turning around sell it before it crashes.
Sometimes simplicity is really the best option.
3. You Do Not Need to Be Genus
One of the many stock tips people will tell you is to check out the company’s fundamentals. If a company is fundamentally strong then it is worth buying if not then it isn’t. With trend trading it can be a good idea to learn the fundamentals, but you can make money without knowing it.
As long as the stock iss going up you can make money from it, whether or not you understand it. Heck we don’t understand electricity, yet we still take advantage of it.
For more on momentum investing or other stock market information visit Shaun’s site to help you learn about investing into stocks Free reprint avaialable from: Advantages Of Trend Trading.
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