Trend Following in the Stock Market

Trend is the general direction of the price in the stock market. Trend is determined by comparing the price and the average volume of trade in the market. The price and volume have a close relation in determining the trend in the market. There are predominant two different trends that are seen in the stock market - the bullish trend and the bearish trend. Then there are some intermediate trends that also exist in the share market. When there are more buyers in the market and the overall market condition is on the higher side, it is the bullish trend. On the other hand, when there are more numbers of sellers in the market, and the buyers' confidence is low, the market is said to be in a bearish side. These two are the most common trend in the market and the price index and volume of trading are the two most crucial parameters for deciding the overall market trend.

As an investor you can effectively gain from following the trend in the market. In fact there is a group of investors who do the trend trading, i.e. buy and sell the stock by trend following in the stock market. This technique is better way of investing in stock market if your objective is to wealth building from stock market. If you are trading in stocks for income then the trend trading is not really a good option for you. There are so many benefits of doing trend trading and they are as follows,

Trend trading is the easiest and safest way of investing in the stocks. All you need to do is identify the trend and make your investments and then close the deal when the trend begins to reverse. That means when the market is bearish and prices of the stocks are falling on a daily basis, select a few stocks that are fundamentally in good position and invest in them. Wait for the trend to reverse and whenever the market is rising and hits the highest level, sell off those stocks and get the profit. To do that successfully you need to have a good research and technical analysis of the stocks. That will help you to determine the entry and exit point of the stocks that is very much important for trading according to the market trend. The technical analysis and fundamental study of the stock together will help you to identify the Undervalued Stocks in the bearish market as that will most likely give you maximum return when the market trend reverses.

But following the trend in the stock market is only profitable when you are investing in the stock market for long term. To get the benefit from the trend reversals, you have to wait for the right opportunity and if you can do that you can expect to get benefited from 60% to 80% of the intermediate price change. So, keep an eye on the market trend, identify the right stocks and invest in those stocks for sure profit.

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