Stock Trading Trends - Follow Stock Trends to Maximize Profits & Limit Losses

Stock Market Trends in Online Stock Trading

A key element you must learn if you want to become a long term successful investor or stock trader is to take advantage of market trends. 

Increase Profits & Limit Losses

Whether you’re purchasing a stock which you intend on holding for an extended period of time or day trading for quick profits, staying focused on the overall market trend and the trend of your investment can greatly improve your opportunity for increased profits while also reducing your losses.

Researching Stock Trends

If you’re a long term investor, which many people have unwillingly become this year, it’s imperative that you know what the current trend of your future investment is before you blindly take a position. Buying a stock just because the share price appears to be a “good buy” due to the price being low is almost always a guaranteed recipe for failure.

With online stock quotes and charts easily accessible on the Internet, there’s no reason why you shouldn’t take some time and do your own research before risking money in a stock. 

Before entering a trade, you should look at an expanded view of a basic chart, one that shows the trend for a time frame of six months to a year.  If the trend has been in a consistent move, either up or down, then it’s your responsibility to try and figure out what caused this to happen.

Here’s a video example of using a stock charts to analyze market trends.

Trading Stocks on Trends to Reduce Losses

The markets have been brutal this year.  The extreme volatility and huge intra day point swings being seen in the Dow almost daily makes it difficult for long term investors who continue to be exposed to increased risks of losing more money while the market trend spirals lower. 

Back in May of this year when the Dow was trading above the 12,000 range, it was impossible to predict the markets would be in the area they are now.  However, traders and investors could’ve avoided accumulating huge losses if they would have trusted what the trend was clearly trying to warn them was about to occur.

Instead of exiting losing trades with manageable losses, many held and even purchased more shares in investments they were losing money on with hopes of recovering their initial losses when the market direction reversed to the upside. 

Of course the market “rally” that the experts were calling for back in early October hasn’t taken place yet and investors can do little now but hold what they own.  Trading and following the trend can be compared to trying to paddle a canoe upstream.  It’s more difficult and risky to try and go against the current than it is to go with the flow.

Selling Stock to Protect Investment Funds

It amazes me that the majority of individuals who trade or invest appear to be afraid of exiting a stock position with a loss.  Trading with the notion that your investment will always recover in time, just increases your chances for more losses. 

If you trade using an online broker, and with commissions being as low as they are, it’s smarter to exit a losing trade with a small loss than to risk more money in a trade that goes against you.  Personally, I would rather exit a losing trade whenever my initial stop loss is hit, rather than adding to a losing position. 

Why tie up additional funds in a losing trade that might take months to recover, when you could use those funds to place a potential winning trade?  A willingness to sell a stock for a loss should be a part of your stock trading plan.

Maximizing Your Trading Profits

Following the trend should also be applied when you have a winning stock trade.  As long as the stock price is going up, there’s no reason to exit the trade.  Just adjust your stops as the price continues moving higher to lock in profits in case a reversal takes place. 

In volatile market conditions like we’re witnessing now, the odds of executing a losing trade greatly increase.  Follow the trend, place your stops, and never be afraid to sell part of your position if you have a profit or a loss.