A detailed analysis of charts clearly shows that asset prices will move in either one of two directions. For extended periods, It’s more than technical analysis. it can move either up or down. Although there are no clear reasons why this would happen, it is something that must happen. There is nothing you can do about it. These charts are what successful traders have learned to follow and profit from the movements they show. They recognize patterns and follow them.
Wikipedia says that trend-following strategies depend on technical analysis, but that’s only one side. Technical analysis may also include the reading of charts. These charts can come in many types and can have patterns that can be interpreted and followed. Trend following is a more systematic approach that requires you to follow a specific method. Trend following requires a relatively simple understanding of mathematics. It’s used to find trends, and then follow them for decent periods.
Trend-following traders believe there are many trends across markets and industries. There is a reason for that belief. They believe that the security price is the most important factor to consider. The truth is that traders can learn almost everything by simply studying price action.
Understanding the importance of price trends and their significance is essential to understanding what trend following is. People who follow trends use technical analysis to identify trends and calculate entry positions into the market. They use price action to determine when it is time to exit.
The price is the key to telling traders when the market will move. The price can give investors all the information they need. It can also tell them about the future. People who follow trends mainly focus on price movements.
They almost always ignore the basic factors such as geopolitical events and economic data. The argument for fundamental analysis and its purpose is always made by trend followers. Price can tell traders everything they need to know. Price can tell traders whether the market is moving up or down and whether items should be sold or purchased. The traders who think they can predict market movements will soon realize it’s almost impossible. It is better to focus on price movements than they do. This makes it easier to make more money for traders.
It’s more than technical analysis.
Trend followers will always say that they are not just doing technical analysis. Trend followers are more attracted to the fact that trends exist in all spheres, including politics, fashion, and economics. Trends exist everywhere, that’s the point.
Trends are dependent on investor behavior. An investor’s enthusiasm can drive the stock price to new heights. These stocks can become vulnerable to reversals, which can be very painful for investors. However, trend followers adapt to these situations and usually get out before the market turns against them.
Dot com’s boom is an example of irrational investors who take the trends to extreme levels. There have been many other instances in history. This includes the Dutch Tulip Mania in the 17th Century. The GameStop revolution, the south sea bubble of the 1800s, and the ups-and-downs of bitcoin are just a few examples.
What’s the longtail? Why should I look for it?
If less than 50% of the distribution falls under the core 20% requirements, it makes long-tail distribution very profitable for many businesses, regardless of their size. Investors who follow trends are subject to the same logic. The characteristics of financial markets are long tails. It is possible to see that not all stocks move over 15%-10% when looking at the entire stock returns. Stocks can move between 10-200%, and sometimes even 500%. These stocks are long tail and are what trend followers are always on the lookout for. These stocks offer the greatest opportunity to make a profit.
Trend following strategies for beginners:
Trend followers tend to have a simple strategy because they are always looking for long-tail trends. They will purchase when the market rises and will sell when it falls. They believe that this will allow them to ride the current trend and get the most out of it.
They don’t know or have no clue. They can profit on both sides because they are impartial. Because no trend fits into the long tail distribution, some trends will have a short lifespan and die early.
It’s like watching the waves at sea. Some waves are larger, smaller, and more powerful than others. Sometimes, monsters can wipe out the entire thing. These are the times traders make their money.
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Bottom Line
It is important to follow trends, but it can be risky for traders if they aren’t paying attention to the market over the long term. Trades should always be based solely on mathematics.
A detailed analysis of charts clearly shows that asset prices will move in either one of two directions. For extended periods, it can move either up or down. Although there are no clear reasons why this would happen, it is something that must happen. There is nothing you can do about it. These charts are what successful traders have learned to follow and profit from the movements they show. They recognize patterns and follow them.