Trading the trend of momentum stocks is probably the fastest way to wealth. At least if you look for a relatively secure path to achieve this. We don’t count hazardous gambles like option plays or Forex martingales here. But small cap stock explosions without a real prior trend may offer another legit killer trading system.
Still, trend trading is not that easy. In the moment the trend investor detects a fine trend, prices are likely high. The stock may be temporarily overbought. Waiting for the next dip? Perhaps, but what if it only occurs even higher? Or worse, it is the beginning of a trend reversal?
At this point the old psychologic problem of all traders sabotages the dream trade. You want to have it cheap, but also with strong momentum in the right direction – and that, of course, immediately.
There are only two ways from here to go and none looks inviting. Either you wait, and waiting is poison for the trend trader, or you jump in right now, possibly at a local top, and your stop gets hit a few bars of your favorite charting time frame later.
One possible solution, perhaps the killer trading trick, could be to simply leave the decision process to a trading robot. An unbiased trading algorithm that doesn’t understand what fear and greed are. An artificial creature that only tries to assimilate its trading algo to the history of the chosen stock or any other traded thing to adapt or fine-tune to its hidden idiosyncrasies.
Such artificial traders do exist. The question is just, do they work? You may have heard of the so called Forex robots and you probably didn’t hear much praise about them, at least not from their users. Right, but the problem is Forex and not so much the idea of automated trading.
In Forex there are almost no regularities that can be exploited. In the very short run there are news-driven trends, but no broker would let you in at reasonable entry prices. Seen from a long-term perspective there are also trends, but they are much smaller percentage-wise than in the stock markets. You will have to use margin and a high leverage, which means bad money management. Again, brokers rip you off here with overnight interest payments that are skewed to their favor.
But the idea of trend riding works and automated trend trading works, too. It works even so well that in the stock market this neural trading system seems to make sizeable gains just by swing trading, banking on short-term trends of the bigger tech stocks.
Combine this autotrader with your trend selection skills, which you will develop over time if you are an avid TT reader – or take our coming trend signals directly, and you are on your way to the beach – as a beach trader, of course.