Trend trading is my favorite strategy because it's so simple in the fact that it is very predictable and it's fairly consistent.
So, what exactly is trend trading? In this video, I talk about what trend trading is and why like it so much.
What is Trend Trading?
According to Investopedia, trend trading is when you attempt to profit from the analysis of a stocks movement in a particular direction.
Simply put... that's finding consistent movement within a stock that happens year over year.
For instance, Boeing (BA) has a trend of going up from the middle of April to the middle of May so that's something that I look for every year in April. If the stock goes up it's a trading opportunity for me and I rely on my charts to tell me if there's an entry point. If there is, I take advantage of it. If there isn't, I just going to the next stock that has a trend.
After finding trends on a lot of stocks, you start to build a database of stocks you can search through to find potential trades.
Like I said, I love this trading technique because it's simple, fairly consistent and keeps you from arbitrarily picking stocks.
Here are some ideas for finding trends:
Do certain stocks go up around Christmas as a result of the holiday season?
Are there certain stocks go up or down around New Years?
Are there any fitness or health and wellness stocks that go up or down every year after everyone has bailed on all their New Years resolutions to eat healthier and exercise.
- Are there certain stocks that go up or down during summer or Thanksgiving because people are traveling more?
- Is there a certain time of year where you're buying more or frequenting certain businesses more often than in a different time of year? Think Black Friday
If you find that a stock moves a certain way around those timeframes or events, those trends are different trading opportunities that you can take advantage of in the stock market.
Think about the Super Bowl. During this time people are out buying beer, chips and drinks to get ready for their parties. So, during that time those companies may see an increase in sales. The companies that have Super Bowl commercials may see an increase in their sales due to the exposure. That may give a little push to the stock.
If you have an idea of what's going to happen every year then why not try to take advantage of that opportunity?
When I find a stock that has a trend of moving a certain way during a certain time, I add it to my calendar for the month the trend occurs. This gives me a database of potential trades that I could can look for every year. Every month, I go through the list of trends to see if those stocks are following that trend again this year.
The stocks may not follow the trend every year or on the exact same day at the exact same price point but it gives you a general movement to look for.
Qs Asked and Answered
When it comes to looking at large annual trends, do you prefer trading the stock options or would you rather buy and sell the stock itself?
If they are trends that last 2 - 4 weeks at a time I will look to do the covered call technique on that trade. But if it's a trained debt for a shorter timeframe shorter duration I will trade options or stock wanted. The longer trends allow for more time for the cover call technique to workout and increasing value
Stocks, Links and Resources Mentioned
If you're wanting to learn how to use trend trading and how it applies to my system of trading and investing, I would love for you to check out my course Trade Your 9 to 5. Registration opens July 15th!
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Join the Conversation
What events or stocks do you think you can find a possible trend around?