Trend trading

Trend trading is making investments in the same direction as the trend in the market. The trends can be defined in different time frames from intra-day to days and months.

A trend can be defined as higher tops and lower bottoms in a given time frame. The trends can be identified by visual inspection of charts. Or by an automatic indicator such as moving averages.

Trend trading can be combined with day trading and swing trading. For example making swing trades in the same direction as the trend.

The benefit of trend trading is that one can stay in the market and ride the trend for as long as it exists and thus make more profits than one could do for shorter time frame trades.

The drawback of trend trading is that the market can be choppy and trends fail to continue. Then it is important to have risk management and be able to get out of the trade.

Another difficulty of trend trading is psychological. When it continues to go up over a longer period of time it can be tempting to take profit or try to call tops prematurely. Also it can be difficult to do it systematically if the market has been bad for trend following for a long time.

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