Trends should be smooth to be trends. If an upwards move is swinging, chances are the price is only moving by random in one direction without the constant driving force that forms a trend.
In other words, the chartist has spotted a trend where none is. In the moment the chartist becomes a trader and puts on a position the trend usually stops. That has to happen regularly with trends that are not real. Otherwise one could trade off random moves and everyone would become rich.
The underlying reason for successful trend trading is of course the above mentioned constant driving force. This alone ensures statistically that, after the position got taken, the trend move continues and a gain can be made.
So, the trend trader is searching for trends to find stocks, commodities or even currencies with such an intrinsic price driving motor. The investor looks for undervaluation, buys and then starts hoping that something will happen.
There is a special form of trend trading and that is searching for relative strength in the stock market. To some degree that trading method merges trader and investor. The trend is there, indicating an inner and fundamental reason and the dragging down of the whole market makes the entry cheap or at least cheaper. The heart of our investor starts pumping faster…
Some stocks can hold up remarkably well when the whole market tanks. While the chart pattern would have to be classified as a swinging trend at is best, taking into account the market down drag, it may still classify as a real trend. We have here the exception of the trend trading rule. Not only trends without pullbacks are real, but also those where bases or pullbacks are explainable with the whole market.
If additionally to the relative strength during the times the stock market goes down the whole upwards move is absolutely exceptionally strong, we may have one of the seldom rocket like growth stocks in their mega-expanding phase. These are the situations the stock trader should really look for and they are also the chances for the investor to become a trader. Right, not only ETFs may transform investors to traders.
If you are able to spot these situations early, you are on track to real wealth. And now you know what Penny Stock Alerts is all about.
