After a long and successful I.T. career in the Manufacturing; Ag Chem; Pharma R&D; and Health Care industries, I was well versed in and sensitive to the concept of identifying and following trends.
Because of that background, when I researched other investment strategies after the Financial Crisis and found the Trend Following Strategy, I was right at home.
Before we get started let’s spell out some definitions. The first being a “Trend”.
Trends can be seen everywhere, in sports, fashions, politics, finance, etc., etc.
When applied to investing, a trend indicates the overall direction of a stock’s price movement over a given period of time.
“Trend Analysis – is a technique used in Technical analysis that attempts to predict future stock price movements based on recently observed trend data.” Investopedia
For Trend Followers the definition of a trend takes on a very specific meaning.
For example, if someone were to say that a particular stock’s price is up 30% over the past 30 days, that may be a fact, but the Trend Follower would want to see the evidence, the actual trend line. That is, all of the price points recorded over the past 30 days that brought the price up 30%.
A few examples might be helpful.
The Expected Trend
There is a tendency on the part of many people to envision the trend line something like the graph above, The Expected Trend.
The expected, or more accurately wished for, trend with a nice smooth line from lower left to upper right. From the end point at the upper right, it is easy to project the continuation of the line and the price moving upward.
Example #1 is a nice chart but in reality the price trend line might look more like our next 2 examples.
The Fast Start
In this case the trend line grows rapidly for the first 15 days and then levels off with very little appreciable gain.
Projecting from the end point of Example # 2, The Fast Start, might suggest a very different investment approach than example 1, The Expected Trend.
Or, the price trend line might look more like our next example.
Example # 3 – The Big Finish
The Big Finish
In this case the trend line barely moves for the first 15 days and then it climbs rapidly gaining most of the 30% in just 15 days. Any projection from the end of this trend line might indicate an attractive opportunity.
All of these examples demonstrate a 30% increase over 30 days, but each tells a very different story.
Trend lines tend to take any and every path.
Trends that are worth following fall into one of two categories.
An upward trend is referred to as a Bullish Trend and a downward trend is referred to as a Bearish Trend.
The period of time is an important element in trend following.
The challenge is if the observed trend is too short it may not continue to increase and if it has been observed for a long period of time, the trend may be about to fade.
Trends are important because they can and do provide valuable information about a stock’s future price movement.
A bullish trend is traditionally a positive sign that the stock’s price will continue to move up for a period. And well-placed investments accompanied by stop loss orders can generate positive results while limiting risk.
As in life, there are no guarantees.
Traditional Trend Followers use trendlines to help them make their investment decisions. They attempt to line up a series of support and resistance lines based on the highs and lows of the trend line.
The challenge is that you may be burning up a lot of price growth in the process of developing a line that indicates that this may be a good stock to invest in. In addition, it requires a lot of time and work.
In an effort to help reduce the burden and decision time, the Trending Stocks platform algorithmically calculates a trend strength for each trending stock for as many as 13 different timeframes from 5 to 200 days.
The graph of the trendline is shown on each stock’s report. It is very helpful to visually see the trend line as part f any investment decision.
This is how you know when and if – The Trend is Your Friend.
At Trending Stocks, we believe the Trend Following strategy to be very powerful. We endeavor to develop the tools to make it accessible and easy to use for the individual investor.
New On LinkedIn
Have you seen our new feature on LinkedIn? #TrendingStockTuesdays Each Tuesday John features a Trending Stock.
Over the coming weeks we will be introducing a number of new features on the Today’s Report page for each trending stock:
The 50/200 day crossover; the crossover trend, i.e. advancing, declining or neutral; % gain over requested timeframe; trailing stop loss calculation.
Labor Day Special
To celebrate Labor Day and entering 4th Quarter of 2023, we will have a Special Price Action. Don’t miss it!
Do you know someone who could benefit from the Trending Stocks research and the Dashboard tools? Forward this email to them and let them know about the 4 Week FREE trial In the coming weeks we will be expanding the ETF coverage.
And don’t forget to Ride Your Winners and Cut Your Losses!