Trend Following the Stocks
Trend following is a strategy that closely follows the movements of a particular security. The foundation of trend following lies in the theory that if a stock's price is rising (or falling) then it will continue to rise (or fall). This strategy relies heavily on technical analysis, as well as a close interpretation of chart data.
Pros of Trend Trading
- Trend trading allows the trader to ride a stock for big gains.
- Low commissions. This is due to a trader focusing on a small number of stocks.
Cons of Trend Trading
- At times, the volatility of a stock can go against the projected trend. Again, this profession is risky, and trend following on the surface looks like a safe strategy, but like the market in general, it still has its risks.