If you have been into stocks for a few years, you know by now there are those “sayings” you read or hear about. These simple words of wisdom may seem cryptic at times, but they are rules to successful trading. What’s unique about these rules is that they apply to all trading situations. Whether you trades stocks, bonds, precious metals, soy bean futures, or currencies, these rules can be applied. In the a matter of speaking, all financial instruments are the same. They go up, and they go down. What matters is you are going with the flow. Don’t swim against the current, you’ll drown.
“The Trend Is Your Friend” – some trader guy
Many of us brush it off, others ponder in confusion. Some of you will throw a fit and call that person a crazy man. It does take a few years to set in as to what that actually means. Please take a moment, calm down, breath and really think about what that means.
Let’s break it down into some easy analogies.
A pro surfer only goes out when the surf is up.
Sailors only sail when the winds are favorable.
Get the idea?
When trading stocks, you want to trade in favorable conditions. If you are a buyer you want the market to be in a bullish mode. If you are short selling you want the market to be in a bearish mode. Simply looking at the moving averages can tell you what mode the market is in.
When the trend is up, and bullish, you want to buy the dips, buy buy the breakouts to new highs. When the trend is down, or bearish you want to short sell the spikes and breakdown of support levels.
Trading stocks doesn’t have to be complicated. Human nature forces us to think in a more complex and abstract ways. If you research some of the top billion dollar investment firms, this simple rule holds true in their methodology.