Sunday, August 23, 2009
An example of trend following giving you a big winner
Each new high can be used as an entry point for a new position, or a point at which to pyramid an existing position. Some people like to enter only on the original breakout - I try not to subscribe to that. If a stock is strong enough you could miss out on significant profits.
In this case, my reward to risk ratio as of today's date is in the region of 10:1, even though I missed the original breakout.
Of course, a trend follower won't know how high a stock can go - they simply hop on for the ride, control their risk and see what happens. The stock may breakout to a new high again tomorrow and then promptly reverse. The thick black line is my trailing stop, which has kept me in the trade for the best part of 3 months now.