SMART MONEY CONCEPT | What Does “The Trend is Your Friend” Mean in Trading?

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When you see a trend, it can be very tempting to bet against it and assume that the stock price will eventually bounce back to its previous value. And while this strategy has some merit in certain situations, generally speaking, you should see the trend as your friend. In most cases, that means following the trend, as opposed to betting against it.

Why should you stop fighting the trend and simply wait for the best entry? There are several reasons.If you are a short seller, and the stock price goes up, you may feel enticed to short it while it continues to increase in price. At first, it seems like a sound strategy because the stock can only break out so much. However, nobody can predict exactly how high it’s going to go before it dips. So if you enter your position too early and the trend continues, you may end up with a significant loss.

The same goes for long buyers. If the stock dips down and you’re sure that it’s about to bounce back up, there’s no need to rush and buy the ongoing dip. There’s no way to say when the dip is actually going to turn, so sometimes, it’s better to wait for a turn to make sure that the price is actually going up.

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DISCLAIMER

The information presented in this video is for educational and entertainment purposes only and is not financial advice. I am not a financial advisor. Trading can result in loss of funds. Individuals must consider all risk factors including their own personal financial situation before trading. All individuals are responsible for their own trades and investments.

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