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Trend Following
Written by: Al Thomas
Trend following also called momentum trading is the simplest and
safest method of stock market investing. It puts you in stocks and
mutual funds that are going up and gets you out when they start
down. Properly done there is no guess work.
How many times have you bought a stock or fund because of deep
analysis? You have gone to Morningstar and bought their extensive
reports – many of which are months old, but you don’t know that.
Maybe your broker sent you a bushel of pretty reports about how
wonderful is this particular company. Unfortunately each time you
bought it the stock or fund either did not go up or went down.
Once you are touted about some equity you can be sure you are not
the first and you might be the last one who bought at the top of the
move. What can you do to avoid this kind of Wall Street trap?
Where can you find a stock or fund that will actually go up after
you buy it? One thing I will say is not to try to pick individual
stocks. Leave that to the pros. The best place for your money is in
a no load mutual fund (that’s no commission) or an ETF, Exchange
Traded Fund (a type of mutual fund that trades like a stock). A fund
has a professional money manager who should be capable of buying
good stocks. He spends his whole life doing this where you have
another occupation.
There are many places on the Internet that rank mutual funds by
performance such as Yahoo.com, stockcharts.com, barcharts.com and
many others. Performance means it is going up more and faster than
all other mutual funds. You can also find a listing of funds in
Investor’s Business Daily or you could subscribe to a service that
does all this for you such as NoLoad FundX. Forget Morningstar and
their star ratings which are meaningless.
To determine whether to buy or sell you can use a very simple
200-day moving average and you don’t have to do the computation. Go
to www.bigcharts.com and click on their Interactive charts. In the
left column you will find a place to type in 200 and then that line
will appear with the fund symbol you entered. When the fund is above
the line you want to own it. When it is goes below the line you will
want to sell it. Yes, it is that simple.
There is no Holy Grail trading method, but trend following comes
about as close to it as the average person will find. A trend
follower understands there will be occasional losses, but he also
knows that when any major trend starts he will be participating for
at least 60% to 70% of the profit of the move. He knows when to buy
and more importantly when to sell.
About the Author
Al Thomas'
best selling book, "If It Doesn't Go Up, Don't Buy It!" has
helped thousands of people make money and keep their profits
with his simple 2-step method. Read the first chapter and
receive his market letter at his website and discover why
he's the man that Wall Street does not want you to know.
Visit Al's
website at
http://www.mutualfundmagic.com. |
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