Trend Trading- Reason Why It Is Better Than Buy-and-hold Investing
Several investment strategies seem to be especially popular views
. The idea of stock investing that many people have is of the familiar approach of buying a stock and waiting for its value to rise before selling it. It has been a very common approach, but before you start investing in this way, think about an investing plan that is constantly growing in popularity. This trading method is known as trend trading. There are at least 5 reasons why trend trading is better than buy-and-hold investing.
Easier to learn and use the Concepts
Any investor who intends to use market trends needs to know about technical indicators and technical analysis. This may seem like a lot of work, but once a trader has a foundational knowledge of the market in general and is able to predict trends with help of technical indicators, there is nothing standing in the way of success. A trend investor can apply these concepts even if they've never heard of the stock before.
Great Profit Potential
When making a profit the buy and hold way, an investor has to find a stock that is running at too low of a price. Assuming the investor has chosen correctly, the profit that is made comes from the difference between the newly increased stock price and the buying price. This is all pretty straightforward, but the thing is most stocks will move up and down throughout the day even though the general trend is for one or the other. Trend traders have the option of profiting from these variances by exiting different positions. Thus if they are so inclined, even these movements can be used to an advantage.
Theoretically the buy and hold philosophy can be used for as long or as short of time as a trader wants. But because of how it operates, a trader is better suited to it if the intention is investors to invest for an intermediate or extended term. Trend traders are able to profit, regardless of the time frame. Money can be made in a day, a few weeks, or however long the investor wishes.
A trend trader that makes successful trades more often than not uses technical analysis to do so. The information provided by the technical indicators is based on what the stock is and has done. As such most transactions are not made on a whim. When using the buy and hold philosophy, extra diligence is required with various stocks. Through heeding the general trend, a trend trader can make quick and informed decisions before entering a position.
Dependent on the Trader's Abilities
The amount that a trend trader can make is more about the ability of the trader than it is about the stock itself. In contrast, using the buy-and-hold limits your profits to the hope that the stock will go up. Trend traders do not need to concern themselves too much when it comes to the particulars of up or down. It's really about whether or not an investor can see signs that a trend is about to reverse itself. By the time such movements have actually happened, skilled trend investors will already be searching for another stock.
When it comes to the progression of the stock market, the buy-and-hold approach has been a major part of it. Getting hold of worthwhile stocks and letting them appreciate was a sure way to soothe any financial ailments. However today, stock investing is more than waiting for stocks to grow in value. And what with the current state of the economy, such an investment plan is not a philosophy that is in your best interests. 5 reasons why trend trading is better than buy-and-hold investing have just been given, but these are only a few of the benefits. If you are debating how you want to invest on the stock market, look no further than trend trading.
by: Jeff Yuan
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