Wednesday, February 08, 2012

What's in a name?

A competent trend follower would be happy to place a trade regardless of what instrument or stock satisifes their criteria. Indeed, I can place trades on stocks without even necessarily noting the name of the company, other than for record keeping purposes. Often I do not even know what type of business they are involved in. If the set up fits, then I simply place the trade. In this manner, I avoid getting emotionally attached to any particular stock - it is simply a vehicle from which I cam potentially make money. It also saves hours poring over fundamental reports, studies of price to earnings ratios etc.

Although fundamentals can be a contributory factor, they do not solely generate profits for traders - movements in their share price do. If you doubt this, remember the dot com boom - if you ignored the dramatic increases in share prices (which in a lot of cases the companies concerned had absolutely no earnings or profits to report), then you would have missed out on those tremendous gains achieved in a relatively short period of time. And with a good trend following system, adhering to your exit signals would have ensured that you have banked the majority of those gains, only closing your positions when those huge run ups had exhausted themselves.

A good trend following system means you can trade stocks, indices, commodities and forex without basically changing any of the system rules. There is no over-optimisation of the parameters required for individual types of markets. If you are presented with a chart that satisfies your criteria, you would not even have to know what it is you are trading. It is because of this that trend following is the hardiest method to generate profits from your trading activities.

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