Frequently asked questions
Trending Stocks is a platform that analyses every stock on every US stock exchange at the end of every business day. It takes the work out finding and evaluating trending stocks. It answers the questions that all investors have – what to buy, when to buy, how much to buy, how to manage risk, when to sell – so that they can make informed investing decisions and thereby improve their opportunity to make money in the stock market. It rates and ranks stock trends across 10 Time Horizons, by Sector, by Price and provides that information in an easy to read Report for each trending stock. Its Risk Management system also provides a Calculator to help you determine the number of shares to consider in order to stay within your Risk Parameters. And more! Learn more.
Yes. Trending Stocks offers a 2-week free trial. No credit card is needed. Sign up for your free trial.
Register for your 2-week free trial here. No credit card necessary.
Your trial includes access to all of Trending Stocks features (see special offer).
When your free trial is about to expire, you will be notified by email.
To subscribe, simply click the Subscribe button, enter your Username (your email address), password, your payment information through the secure payment portal, and continue using the platform. You will be billed monthly and can cancel at any time. (See how do I unsubscribe?)
The 2-week trial is free. No credit card information is necessary to sign up.
After your 2-week trial has ended, you will be eligible for the Special Introductory price of $19.99 per month. As an added bonus, we will extend that price for 24 months! The regular price is $29.95 per month.
Please note that your subscription will terminate at the end of that month’s billing cycle. You will still have access to the platform until that date.
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HOW TO USE THE REPORT
Currently Trending Stocks analyses stocks on the 3 Domestic US Stock Exchanges:
New York Stock Exchange (NYSE) -- NASDAQ -- AMERICAN
Interested in Foreign Markets? We will be adding several foreign exchanges in the future. Sign up for our newsletter to stay informed about all new features and their launch dates:
We created numerous tools to help make your search for Trending Stocks easier! They include Quick Picks – a list of Top 25 Stocks (by Rank and Symbol), ETFs, ESGs; the Detailed Search lets you use 6 different filters to refine your search; Search by Stock lets you pick an individual stock to see if it is trending over multiple time frames; the Graph provides a visual for the selected stock; My Watch List helps you create your own special group to follow; Stock Trade Calculator is a tool to help you determine how many shares to buy and manage your risk. An explanation of each tool and feature can be found below.
This is a great feature of Trending Stocks. On any given trading day, there may be hundreds or thousands of trending stocks.
This feature allows you to quickly search for every trending stock based on your personal criteria and filter out those you have no interest in.
You can return to this page and modify your selections as often as you like. All of the selections have defaults so that if you don’t want to make individual choices just hit Submit and Reports will be generated. See individual descriptions below:
Days Trending – Every stock is analyzed over 10 different time horizons. The drop menu shows you each time horizon. Select the one that you prefer and best fits your investing strategy or try several different trending time horizons. The default is 200 days.
Presentation Order – this refers to how you would like the Stocks in the Report to be presented, either by Rank or by Symbol. Each stock trend is Ranked based on numerous factors tested over many years. The stock with the highest score/grade is Ranked #1. Selecting Symbol order provides an alpha listing of each stock and is a fast way to check on specific stocks. The Rank is still shown in every Report. Default is Rank.
Trend Strength – Strength A indicates stocks with strongest trend for time frame selected. Strengths B and C are included because they might be indicative of early forming trends. Investors should use caution in selecting those stocks and should do additional research before making a buy decision. Default is “A”, the top grade.
Stock Exchanges – You can either select All Domestic or pick an individual Exchange, ie. NYSE, NASDAQ, American. Foreign exchanges are not available at this time.
Business Sectors – Some Sectors are so large that individual Industries within those Sectors can also be selected to further filter results. The Sectors are based on S & P Listing.
Price Range – this allows you to see only those trending stocks that fit in to your investing budget. If you leave this section blank, you will see all trending stocks regardless of price based on your other filter selections.
After clicking Submit, your personally selected Reports are quickly displayed. Remember on any given day there are hundreds, if not thousands of Trending Stocks. To see fewer Reports, use the filters rather than the defaults.
Quick Picks allows you to run a report without filling out the detailed search information. Simply click on the Quick Pick of your choice and the report will run. Your options are:
- Top 25 Stocks by Rank
- Top 25 Stocks by Symbol
- Top 25 ETFs
- Top 25 ESGs
Everyone is super busy these days. To make it fast and easy for people who are familiar with the systems and know just what they are looking for, we created a series of quick pick options. Top 25 Trending Stocks by Rank or Symbol, Top 25 ETFs, Top 25 ESGs. In addition, we have created My Watch List so that subscribers can set up a personal list of stocks they want to quick track.
It’s really easy. First, to set up or change your list; You Click on Watch List dropdown and Display/Edit List. Enter Symbol, Select from Days Trending list, then click Add. To Delete a stock from the List, click on it and click Trash Bin in upper right corner. To see what you included in your Watch List, click Display/Edit List. If you want to see the Report on each stock in your Watch List, click See Reports.
See -- What is the Purpose of the Calculator FAQ.
After you have chosen a Quick Pick or selected your Detailed Criteria and hit Submit, the system will generate and display a Report on each of the Trending Stocks that met your criteria. The details in the report have been carefully chosen to provide the information that investors need to make investment decisions and manage risk. Bear in mind there could be hundreds of stocks that met your Detailed Criteria.
We feel very strongly that investors must be diligent in managing risk! Below is a screenshot from a typical Report.
This is the first section on the top of the page:
The first thing you will notice is the Symbol and Color. It’s designed to make you aware of potential risk and is determined on a stock by stock basis.
The three things that determine risk are: Daily Trading Volume, Recent Price Volatility, and overall Market Condition. Green Circle with Check mark indicates Favorable conditions. Amber Triangle indicates Concern and Red Box with Exclamation Point indicates Caution. Even if a stock is trending, there may be factors that increase risk (e.g. recent volatility) and therefore attention is called to that condition by the color/symbol.
The Main Body of the Report
Remember there could be hundreds of Reports or more depending on the Criteria you selected.
Let’s take a quick look at what it provides.
The Header includes today’s date; the number of trends that met your specific criteria; the total trends for the ‘days trending’ selected; and the Market’s overall condition for that day.
The Body of the Report includes a great deal of information that is easy to scan!
On the left you will see the Color Symbols of the condition for each Trending Stock indicating; Favorable (Green Circle); Concern (Amber Triangle); Caution (Red Square).
The top row includes: Stock Symbol, Stock Name, Trend Strength (A, B, or C), Year High price, Daily Volume of Shares Traded (this effects the condition), Stop Loss in dollars and percent.
The bottom row includes: Rank, Sector, Days Trending based on your selection, Year Low price, Volatility (this effects the condition), Closing price for that day.
Important elements to understand
Stop Loss. Trending stocks calculates a prudent stop loss position for your consideration. It is calculated based on the recent volatility of that specific stock’s price. For example, if you were to buy a stock at $14.00 per share and the stop loss adjustment is $1.85, you would place your stop loss order at $12.15. If the market goes down substantially and your stock dropped down to $12.15, your broker would sell that stock so that you would not lose more. We are also in favor of trailing stops and will talk about that in a following FAQ. Use the Stop Loss amount as a guide and apply your own judgement. Trend Followers are big believers in the use of a Stop Loss to lock in profits and manage downside risk!
Trading Volume. A stock should have enough trading volume so that if you wanted to sell it or if that stock hit the stop loss, there would be enough volume so that the stock could be sold. We are very cautious about this and do not consider stocks with less than $1M shares of trading volume as a minimum.
Market Condition. Based on a number of factors, Trending Stocks evaluates the overall market condition. This is not based on an individual stock.
At the end of each business day/trading day, the System downloads information on every stock on the 3 Major US Stock Exchanges. It uses powerful algorithms to analyze each stock and identify those that are trending. It does further analysis to determine time frames over which the stocks have been trending and rates and ranks them individually. All of this information and more is presented in the Report.
Stop Loss is a critical part of Risk Management. Think of it like a ‘safety net’. It has two purposes: to prevent big losses and to preserve capital appreciation. When you decide to buy a stock you are actually going to place two orders. The first is your Buy order. After purchasing a stock you now have the exact price you paid for that stock. Now you place another order called a Stop Loss order. The simplest stop loss order works like this – the price of the stop loss order is set below the price of the stock just purchased. If the stock’s price drops to the amount of the Stop Loss, the broker will sell that stock in order to prevent additional loss and preserve capital appreciation.
Trending Stocks calculates the Stop price based on the most recent volatility in the stock’s price. In addition, a multiplier is applied to the volatility to arrive at a Stop price that will tolerate reasonable price changes thereby allowing you to hold the stock through normal turbulence. The goal is to accept small losses if necessary and avoid large losses if the market takes a downturn. By the way, a Stop Loss Order is usually only in effect for 90 days and you will have to enter a new Stop Loss Order at that time. This will give you an opportunity to raise the price of the Stop Loss to lock in gains. Your broker will notify you when it is about to expire.
Our preferred type of Stop Loss is the Trailing Stop and the choices are the ‘set $ price’ stop or the ‘percentage’ stop. Of those we prefer the Percentage stop (%).
First, let’s discuss the “fixed dollar trailing stop”. An investor buys a stock for $50 and puts in a “fixed dollar trailing stop loss order” at $40 or $10 below the purchase price. Over time the stock goes up to $100, the trailing stop will go up to $90 – still a $10 difference. If the stock happens to drop down to $95, the trailing stop will stay at $90 – only a $5 difference. Stops do Not move down unless the investor re-enters a new stop loss order! This is now at greater risk of stopping out since the stop loss is now so close to the stock price.
Now let’s discuss the “trailing percentage stop loss”. Same scenario - $50 stock; a 20% “trailing percentage stop loss” is $10 and the stop order is set at $40; price goes up to $100, the percentage stop loss goes up to $80 – still a 20% difference.
The fixed dollar trailing stop has a higher probability of stopping out and perhaps on a stop that you would not want to sell.
This is why we like the “trailing percentage stop loss”! In either case the investor can always enter a new stop loss number or % and must do so every 90 days even to keep the original positions.
We experienced 4 Major stock market downturns (also called drawdowns) and lost between 45% and 55%. It took 14 years to just get back to even. That happened because we were Buy and Hold investors in it ‘for the long run’. We learned an extremely painful lesson and discovered that it wasn’t necessary.
We found a Strategy called Trend Following that emphasizes not only growth but Risk Management, an integral part of which is the use of Stop Loss orders to protect downside risk and lock in profits. Had we been familiar with this Strategy and the prudent use of Stop Loss orders, we would have had a totally different outcome and would have created a much better financial position over those 14 lost years. “To look at return without also looking at downside risk is a dangerous bet that I am not willing to make.” Josh Hawes and Paul King, “The Great Hypocrisy”, in Trend Following 2017, p.568.
The shortest answer is ‘when the trend fades’. But how does an investor know when that is? Unfortunately there is no perfect answer to that question. After a great deal of testing, here is our solution. When a stock hits a “50 Day Low” that is our trigger to sell it. Remember, once you own a stock, there are two ways that a sell takes place.
1. The stock price hits the Stop Loss and the broker sells the stock. The stop loss order decision was made at the time the stock was purchased and should have been made based on available data about the stock’s volatility and without emotion.
2. Even though the stock has not hit the stop loss, the investor sees that the stock is not really trending, sees others that are and decides to sell the stock. Using the 50 Day Low as a guideline can help to take the emotion out of that decision. You do not want to jump from stock to stock unless there is a good reason and that is data about that stock or about the market.
When you enter the Symbol, the system will tell you the date and stock price of the last 50 day low to help you decide.
Think of this like being in school and after a series of tests, the teacher “rates” each student. That is, students get a grade of A, B, or C based on the threshold for each category (e.g. A = 92 to 100). This is their Rating.
In Trending Stocks this relates to the Trend Strength of 1, 2 or 3. But wait – there’s more to this! In any group of A students you will find Rank within each grade. One A student might have a score of 99 and another A student might have a score of 92. They are all A students but their cumulative scores are not the same and they are ranked accordingly.
This relates to Trending Stocks Ranking of the stocks shown in each report. A stock could have a Trend Strength (Rating) of 1 and a Ranking of 1 or 270 (or some other number) based on how many stocks made the Rating of 1 cut. It provides another level of information for the investor. Pretty cool, huh?
At the close of every business day that the US stock markets (NYSE, NASDAQ and AMERICAN) are open.
This is one of our favorite innovations and it is all about Risk Management. It helps investors to determine the number of shares of a particular stock to consider buying and still stay within their Risk Parameters. It does not mean they should buy that number of shares as there are other considerations as well, eg, number of other stocks they wish to buy, size of budget for stock purchase.
Risk Management is a very important element in Investing in general and every stock purchase in particular. Every Trend Follower knows they must establish their Risk Parameters and stay within them to keep the logic in and take the emotion out of their decisions. We created the Calculator to assist investors in that process.
The Graph is a visual representation of the Stock’s Trend. Just enter the Symbol and you will be presented the 200 day Graph for that stock. While it is very useful to see the Report for that stock as well, it is not necessary to do that in order to view the Graph.
This is an acronym for 'Environmental, Social and Governance. Sometimes referred to as Sustainable or Green stocks'. Environmental, social, and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments. Environmental criteria consider how a company performs as a steward of nature. Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights.” Investopedia, March, 2021
TREND FOLLOWING STRATEGY
Trend Following, as an investing strategy, has been around for several hundred years. You may have noticed the quote on our Home page by legendary economist, David Ricardo, “Cut short your losses, let your profits run on.” He made that statement in 1838! Trend Following is a Technical Investing Strategy. It is based on studying a stock to determine if its price is “trending”, that is increasing, in a particular direction. Stocks can either go up, go down, or stay flat. It is not trying to predict a trend, but rather is analyzing if a trend already exists as well as when the trend is fading or reversing. On the Trending Stocks platform, we only consider stocks whose price is trending up. In order to analyze a stock a Trend Follower may use an assortment of indicators including but not limited to: moving Averages, relative strength indices, various, complex charting patterns, etc. In addition, the Trend Following Strategy is highly focused on cutting losses and employs indicators to try to determine when to exit/sell. This is the essential Risk Management component of the Strategy. Some trends can be quite long and others may be very short. The focus is always on “Cut short your losses, let your profits run on.” With Trending Stocks you do not have to do that complex analysis. When you get your Today’s Report, all that work has been done!
Absolutely! Trending Stocks gives you another tool in your arsenal without adding to time needed for research, charting, and calculating. Even if you are a believer in a Fundamental Strategy, shoring up your research with trend information gives you an added advantage.
To make life easier! There are thousands of stocks on the US Exchanges alone. Using a tool helps you to sort and find the stocks you are most interested in, that may provide the kind of return you are seeking and do so more quickly.
“38% of new investors and 34% of experienced investors rely on friends and family for their stock picks. Consumer Insights: Money and Investing, FINRA Investor Education Foundation and NORC (University of Chicago), February 2021.”
This is not a strategy. Anytime you use your hard earned money, you should have a strategy and research in place. When a friend tells you about a new product, you likely do some research on it before purchasing. Shouldn’t your investments get even more scrutiny?
Everyone has expectations. You. Us. Everyone. Let’s set some realistic expectations.
Trend Following can provide great returns but is Not a get rich quick approach to investing. It is better classified as “slow and steady wins the race.” Anyone who has been investing for a while has gotten a “hot tip” or a “can’t miss opportunity”. Waiting for the next “hot tip” is Not an investment strategy!
Trend Following is a journey. This is a repeatable process that can allow you to compound your investments. The goal is long term growth by sticking to the strategy. You will have both winners and losers. Make the losses small by using Stops especially Trailing Stops. As you learn more about the general strategy of Trend Following and as you observe it in operation day after day via Trending Stocks, you will develop a sound understanding of how it works to help you grow and protect your money. You will gain experience and the confidence to make this a part of your long term investment strategy. With the help of Trending Stocks, your commitment of time and energy should be small but it does require persistence and follow-through. This is a great opportunity for an education that will be to be far more valuable than any class you took in school. So – Start slow. Observe and learn. Gain confidence. Get started!
It makes the process easier. Trend Following has been a successful strategy for a very long time. (Some quote on Home page by Economist David Ricardo in 1838!) Typically, Trend Followers need time, resources, and in-depth knowledge including extensive charting and more to utilize a Trend Following strategy. Trending Stocks does all of the heavy lifting and calculating for you – identifying and analyzing every stock every day. Other platforms are difficult to understand without extensive training and do not distill information in easy to digest reports
Whereas, Trending Stocks takes the work out of the finding and evaluating process. It answers the questions that all investors have – what to buy, when to buy, how much to buy, how to manage risk, when to sell – so that they can make informed investing decisions and thereby improve their opportunity to make money in the stock market. It rates and ranks stock trends at the end of each trading day for every trending stock on the US Stock Exchanges across 10 time periods, by Sector, by Price and provides that information in an easy to read Report for each trending stock. Its Risk Management system also has a Calculator to help you determine the number of shares to consider in order to stay within your own Risk Parameters. And more!
No! In fact, we are not even trying to ‘predict’ a trend. A trend has to become a reality before the stock is even considered for further analysis. As a result, in trend following you never get in at the very beginning/bottom of a trend. And you never get out at the very top.
Trending Stocks is a ‘technical analysis system’ and therefore, does not consider ‘fundamentals’ in its analysis. If it identifies a trending stock that you feel has good fundamentals, that can make your buy decision even easier. We do love companies with good fundamentals which are trending but trending always takes precedence. Remember a company and its stock performance are not the same thing. A company may have good fundamentals and a languishing stock price. Conversely, we have all seen companies with low profits and high stock price – think Tesla, for example.
See calculator explanation.
This is definitely not day trading! This is an End of Day solution. If using the Trend Following strategy, stocks are held for as long as the Trend continues. That might be for several days, weeks, months or more than a year. Ride your winners!
When the market is down, we show a ‘beware’ flag in the Report, basically the color Red. It does not mean you shouldn’t buy when the market is down but you should do so very carefully and thoughtfully. There are stocks that trend in down markets and they may be great investments – but use wise judgement in a down market.
Both are Risk Parameters. Portfolio Risk is the amount of your overall portfolio that you are comfortable having at risk (aka ‘losing’) at any time. For example, you have a total portfolio of $25,000 and you are willing to have 20% or $5,000 at risk. (This does Not mean you want to lose it but if you did, you would not feel like jumping out of the window!) Trade Risk is how much you are willing to risk on any single trade or stock purchase. There are two approaches that investors typically use to determine their trade risk. 1. A percent of your total portfolio – generally 2% or less but for beginners 1%. 2. Decide how many stocks you would like to have in your portfolio at any one time. For example, if the answer is 10, then divide that number into your Portfolio Risk of $5,000 and your trade risk would be $500. This along with your Stop Loss help you manage risk. (See Stop Loss and Calculator) Once you understand how your risk is under control, you will sleep a lot better at night!
Always a great idea!
Read through our Glossary of Terms and FAQs. Visit our Blog for more insights. Get educated, start small, invest in stocks ‘on paper’ first. Use the Detailed Search tool to get familiar with different Sectors. This can be a fun journey and you will feel more in control of your financial future if you take time to get educated. Learn at a pace you are comfortable with. You can take it in bite sized chunks.
A Trend, as it relates to investing, is an identifiable pattern in a stock’s price. This can be used to assess the near term future performance of the stock’s price. It may be used as an opportunity to take advantage of the upward trend in stock prices to invest and, hopefully, make a profit. When a stock’s price is increasing in a relatively consistent manner over a period of time, it is an indicator that the stock is currently in favor with retail and institutional investors, many of whom may, in addition, be fundamentalists. Therefore, if the stock is popular you want to take advantage of that popularity for as long as it lasts. You have to watch for a trend to form, therefore you will never get in at the very beginning. You also have to wait for the trend to fade, so you will never get out at the very top. Some trends may be of short duration and it is possible to lose on that trend – however, using Stops should keep the loss small. Some trends can be quite long and provide nice profits.
Every stock’s trend is evaluated over 10 different trend periods from 20 to 200 days. For each trend period the stock’s performance, i.e. “trend”, is graded using numerous parameters. The grades are tallied to produce a final score with a trend strength of 1, 2, or 3. Much like a student would be considered a “1” student if the sum of all of his or her grades met the criteria for a “1”.
"Trend Strength “4” is designed to recognize a stock that had been trending but is no longer at a new high. However, its closing price is within 3% of the most recent high closing price."
After rating the stock’s trend strength a 1, 2, or 3 for any single trend period, e.g. 100 days, it is assigned a rank. It is much like you might rank students in a class. There may be 20 students who attained a total grade point to qualify them as “1” students. However, there is a difference between a student with an average of 98 versus one with an average of 91. That’s how they determine who is number one in the class and we use a similar process to rank the trending stock.
Volume is a measure of the number of shares of a stock that are traded in a single day. The number of shares traded does not impact the rating or the ranking of a stock/trend. However, it is an important element in Trend Following where Stop Loss orders are widely used and recommended to provide risk protection should the market or the stock price take a rapid change in direction. We report all trending stocks regardless of the average volume of shares traded. However, if the average trading volume for a stock is less than 1,000,000 shares traded on average, the stock will be flagged as being higher risk. The reason for this is based on the fact that in the event of an unexpected downturn your stop loss order may not get executed until the stock price has dropped considerably due to low volume of shares. When you are selling someone has to be buying and vice versa. That’s not usually a problem when a stock has millions of shares but could be a problem for a low volume stock, hence the “warning” flag.
This is the measure of price changes for a single stock from one day to the next. Trending Stocks calculates a moving average of the price changes over the previous 15 business days and then applies a multiplier, that has been tested for many years, in order to determine a reasonable stop loss adjustment that provides downside protection without unduly impacting the overall size of your investment. This will become clearer when we discuss Risk Management. If, after applying the multiplier, the calculated Stop Loss Adjustment exceeds 15% of the last Closing Price, it will be identified as being a sign of higher risk and would generate a “Concern” or “Caution” Symbol on the Reports page.
This is the price at which you will want your broker to sell the stock, should the market change abruptly, in order to preserve your capital and prevent further losses. Trending Stocks calculates the Stop Price based on the most recent volatility in the stock’s price. If you simply used the recent volatility to set the Stop Price it would result in the stock being sold within the next few days in most cases. Therefore, Trending Stocks applies a multiplier to the volatility to arrive at a Stop Price that will tolerate reasonable price changes before generating a sell signal thereby allowing you to hold the stock through normal turbulence.
There are multiple ways to protect your invested capital after you’ve placed a trade, but the most common is the use of a Stop Loss order. After you place your Buy trade and it executes, you now know the purchase price. You can now select a price below the purchase price and place a Stop Loss transaction at that price. Or you can do it all in one step by placing the buy order and requesting a Stop Loss at a specific dollar amount or percent below the purchase price. Typically, the Stop Loss order stays in effect for 90 days. A typical Stop Loss order remains at the price you requested until you decide to move it. If the stock price moves higher you can place a new Stop Loss at a higher price to lock in some of those gains. And hopefully, repeat that process over and over. You are in control. Another way to accomplish something similar is the place a Trailing Stop Loss order. This can be done at the same time or following the trade. They can be for a set price or a specific percentage. The Trailing Stop, especially the Percentage Stop is kind of a “fire and forget” approach. It moves up every time the stock price moves up and never moves down. It insures that your risk is maintained at a specific dollar value or a specific percentage, and does not require your intervention. It also has to be reset every 90 days.
Market Condition is a very subjective term. It generally refers to how the entire stock market is performing. Is the Market for today UP, Down, or Flat. It could just as easily refer to the Market’s performance over a period of time (Day, Week, Month, Quarter etc.). Trending Stocks takes both a long and short term view of the market. If the long term assessment of the market is good and the daily results (advances exceed declines) are good then the condition = Good. If its long term assessment is good, but the daily results are Poor then the condition = Fair. If the long term market condition is poor but the daily results are good the condition = Fair.
All forms of investing have some level of risk associated with them. That’s why you should expect to receive a premium return on your investments as a reward for the level of risk you accepted. Therefore, before anyone begins to invest they really need to understand their own personal risk tolerance. Protecting your principle is key to a long and successful experience in any area of investing. Small losses are part of the investment game. However, big losses will take you out of the game. Unfortunately, most investors focus on finding the next winner and getting in as early as possible. To them risk management is an after-thought. For many people risk management is something they will deal with when the time comes and hopefully that will never come. Unfortunately the truth is that it does come. And the inability to make a decision to sell a stock that you really liked and had great promise at one time, is a tough decision. If delayed long enough, you may find yourself in the position of holding on to a stock hoping it will turn around by telling yourself, “I’m in for the long run”.
The better approach is to address Risk Management right up front and make it part of your selection strategy. That is why trend followers always us a stop loss with every buy. They’ve decided up front how much they are willing to lose and that decision not only controls the risk of a downturn, it also helps them decide how large an investment to make in any particular stock. Once you have chosen the size of the stop loss, you can divide that into the amount you are willing to risk on this or any investment and that will show you the number of shares you might consider purchasing to stay within your personal risk tolerance.
EXAMPLE: Trending Stocks identifies a stock that is trending over the last 60 days. It is rated as a 1. The Market Condition is Good and average daily Volume is 2,000,000 shares traded. The Volatility calculated by Trending Stocks indicates a Stop Loss at $8.00 and the stock is trading at $70/share. You have decided based on your personal risk tolerance that you are willing to accept a possible loss of $120. To determine the number of shares to consider purchasing without exceeding your risk tolerance limit of $120, here is the formula. Divide the risk tolerance limit ( $120) by Stop loss ($8) = 15 shares. You are dividing the total amount you are prepared to lose on this (or any trade) by the amount you could lose if the price falls by $8.00 per share and your Stop Loss is executed. If you cannot afford to buy 15 shares buy less. But do not Buy more! Note: setting a trailing stop will keep your potential downside at $8/share and as the stock price increases your potential loss gets smaller.
The real difference between a trend and a spike depends on the relative size of the price change and the timeframe involved. Most people refer to a spike as an unusually significant change in price over a very short period of time. However, significant and short are both relative terms. What’s significant and what’s short? Our definition is: a stock rising dramatically in price over a day is spike; over a week could be a spike and should be examined thoughtfully before purchasing.
This occurs when the market has a broad contraction and stock prices fall across a wide spectrum of industries or sectors. The most common definition in the area of investing is the difference between the peak and the trough. For Buy & Hold investors who typically do not use a stop loss, they may find themselves enduring the drawdown for a much longer period of time and/or having to make very difficult decisions, to sell their positions and take real losses. For trend followers these events cause most of their holdings to hit their stop loss positions and a sell takes place but they do not ride the correction down to the bottom. It is always painful, but for the trend followers it comes to an end quickly and leaves them with most of their capital in hand. If the drawdown came after a period of expansion, the drawdown may have resulted in your giving back some of the recent profits. The goal for the trend follower is to be sitting on the sidelines with most of your capital, waiting for the market to bottom out so that you can take advantage of some bargain prices on the way back up. Drawdowns (or downturns) are painful. In March, 2000 the S&P was at 1500. In September, 2002 it was 845. By September, 2007 it had just about made it back when the Financial Crisis hit. By February, 2009 the S&P was at 735! It wasn’t until April, 2013 that it made it back to the 1500s. The average Buy and Hold investor would have benefited greatly from using Stop Loss orders to reduce the loss and provide capital to take advantage of opportunities.
A calculation that takes the arithmetic mean of a given set of numbers over a period of time. In investing it is used as part of some technical investing approaches. Trending Stocks uses the moving average to calculate the recent volatility of each stock and then uses the result to help determine the size of the stop loss.
In the context of investing this refers to the lost opportunity associated with either holding on to investments that are underperforming versus the market in general, or sitting on the sidelines with money because you are unable or unwilling to make a buy decision. In trend following it typically refers to the lost opportunities associated with holding on to the stocks that have fallen significantly in price in the hope that they will come back and perform as you had anticipated when you first acquired them. Buy and Hold investors often find themselves in this situation. There are various reasons for this. They include: the investor invested a lot of time and energy in selecting the stock and has an emotional tie to it; or they did not use a stop loss and now are reluctant to sell the stock and realize the loss. They prefer to wait for the stock to come back and rationalize it by saying they are “in it for the long run”. The “lost opportunity” has a cost. In order to avoid that situation trend followers use the stop loss to make the sell decision and take the emotion out of it. Thereby allowing those funds to be reinvested in the next promising trending stock.
Setting up a margin account at a broker/dealer allows you to buy on margin. Not something that we recommend unless you are a very experienced investor and comfortable living with a much higher level of risk. You are basically ‘borrowing’ from the broker in order to buy more shares of a stock. When the broker has a “margin call” it means you must pay the money you borrowed. Margin calls can occur at any time but especially when the market has turned down. This is likely to be when the investor has lost money and must liquidate something in order to pay the margin. You can see why this has a high level of risk.
Trend Followers also believe in Buy and Hold. The Hold period is as long as the Trend lasts which might be short or long depending on the stock.
“What is the Long Haul?” We have asked this question many times and answers vary from 1 year to forever! The Long Haul for us, when referring to a specific stock or index fund, means: as long as it is Trending. When referring to the US stock market in general? Forever. There will always be stocks trending on one of the US Exchanges.