Trend trading works best with a tight stop. If a position is stopped out, chances are heightened that the trend has ended. This dualism makes the simple stop trend trading system robust. But there are alternatives thinkable.
Instead of entering a trend and having a stop, it is possible to use an oscillator trading system that switches a position between long and short. This is swing trading pure, and every switch works as a stop for the preceding trend. Such a swinger is best done with a swing trading software, since it is more precise and psychologically less sensitive than a human trader.
Another system alternative is to just trade fundamentals. As a simple system idea, use the revenues line of the company behind a growth stock. If it goes up, hold on to the stock and the first time it decreases, sell it. Looking only at the fundamentals focuses a trader even more on the bigger picture than this growth stock index trading system.
This revenue trend trading method has of course to be adjusted for seasonality of revenues, for instance by using trailing twelve month revenues instead of quarterly data. Or compare each revenues data point to the same quarter of the last year.
However, both revenues trend end detection methods add another time lag, and that maybe anyway the weak point of this trend investing system. Often the price tells long before the fundamental data begin to suffer that something is wrong with a stock.
A third method would be to not go out of a position, but to exchange it with another one. The exit rule for cases where otherwise the stop gets executed is then to find some other trading candidate in a better shape.
This method is interesting for one simple reason. A stop signal is usually no good trading signal. It is just there to protect capital and it may have for trend trading some minor signal character. The chances that the trend got disturbed have increased, but usually not enough to put now the opposite position on. Executing the stop is mostly not following a real trading signal.
Perhaps we are now back at the second method. It may be difficult in the stock market, when the original holding turned south because the whole market tanked, to find a replacement. The worst case scenario would be to jump from one sinking ship to the other until the market turns up again.
So, instead of looking for another long position, just switch the former long holding to a short trade. Swingy growth stocks with uncertain future potential are the right vehicles.
Finally make the jump and let this swing trading automaton do the actual trading. Automated traders have their mind free for more important things. One of them is the right selection of currently swinging stocks or futures. And the other one has to do with the beach…
