These very different trading styles have been confusing legions of traders and investors. Trading the trend and picking a bottom. The first one is for traders, while the latter sounds like a timing system for investors. We are of course inclined to trend following, but we also think that in special markets bottom picking has its value. Oversold penny stocks come to mind here.
Special situations excluded, the opinion of a trend trading site should be clear. It is a harsh one. Picking a bottom is not really possible. This is more for investors who pretend to do timing. Investors have replaced the timing of a trade by hoping and so they invented the investment.
The real value investor would now probably argue that he is not picking a bottom. What he does is stock picking combined with bottom fishing. But what exactly bottom fishing vs picking means is unclear. Some investors buy into falling prices and call that bottom fishing. Obviously they don’t expect the price to fall further, so this bottom fishing could also be called bottom picking.
In the penny stock world the trading system to pick a volatile stock at low prices after initial signs of new life works. With bigger stocks and other liquid markets it is better to bet on a trend.
Why? Simple answer, you skip the waiting phase. After that comes the flip of a coin for the investor. The price could also go down. If you want to flip a coin, you should do it immediately, for instance, in a casino, playing roulette. Who wants to wait a year just to see that the roulette machine generated the wrong number? Investors, seemingly.
But the worst thing you could do is the mixture of trading and investing the wrong way. Starting with an investment and then trying to apply a stop loss is terrible. Doing the opposite, putting on a trade and then ignoring the stop is the trader’s nightmare, experienced during the trading session.
There are various ways to trend trade. Investing in growth stocks by looking more at the potential than at p/e multiples is one way. If you need the adrenaline rush of a fast rotating roulette machine, day trend trading may be right for you.
It is even possible to day trade the trend and make a cheap entry with a trading strategy that reconciles trend trading and bottom picking. This system lets even the maximally transformed investor, who is now a day trader, cheer.
How does it work? Using the right timing technique lets you anticyclically enter day trends, for example, in Forex or of stock indices. Reversing the slippage by hopping into pullbacks, but overall still riding the trend – that would be it, the Las Vegas fun machine, generating also cash instead of draining it.
Nonetheless, this combined scalping and trend riding system is not easy to learn, so it may pay off to have someone in a trading room who is giving you live advice.
