Constructing one of the best trend trading systems may be achieved by combining what is good on its own for trend following. If the technical side, the trend in a chart, is aligned with the fundamental part, an uptrend of earnings and revenues, the odds increase for the trend trader.
Either the trend price pattern gets confirmed by the fundamentals, or the other way round, the market confirms what the earnings trend analyzer found out.
A chart trend of a stock whose revenues are growing for the right product, has simply a better probability to go ahead after the trend trader entered it. All too often a trend comes to its end in the moment you are in. That is the problem of trend trading. Another one is of course that the trend reverses, but only temporarily, shakes you out, and then goes ahead.
But the first case, the trend really has ended in the moment the trader got on board, is astonishingly frequent. Why? It has to be this way. Many trends that can be spotted in charts are just there by random. They look like trends but they are just like five times of red in a sequence of a roulette machine. It happens and it has no meaning. You spotted the trend of the roulette? Bet on red the sixth time and you will lose with a chance of fifty percent. It looked like a trend, but it wasn’t a trend. It was just pure chance.
Then there is the distribution of trend lengths. Shorter trends occur more often than longer ones. This is true for both real trends and for the pseudotrends generated by random. The outcome for the trend following system trader is that indeed all too often the trend is just about to reverse or to fade in the moment the trade is put on.
One of the secrets of trend trading is that it pays off to boost the probabilities of the trend running further with a confirmation from the fundamental side. And so we arrived at the first part of this trend trading system.
Look for stock trends that go hand in hand with a revenue uptrend. These are the criterions for a small selection for growth stock trading candidates. The selection rules can be extended by the kind of product the company produces. Good is a single product that is on its rise globally. Some new thing that the world has never seen before. At least not in the specific way the company does it.
A consumer product is better than what a supplier delivers to others who produce the final thing. A company that produces or only sells many things can’t grow strongly, unless there is a specific way of this selling that unites the umbrella of products. In short, there should be a single growth story centering around the end consumer.
Ideally we have now three criterions to narrow our selection for interesting growth stocks:
- A rising price resulting in a technical trend in the chart
- Rising earnings and even more important rising revenues
- A compelling growth story fueled by a single reason
How to enter the trend of this growth stock in a safe manner? Safely means of course applying a sensitive stop loss rule or something equivalent. For instance, this could point to end of day trading signals or even day trading the long running trend, at least at the entry zone.
There are various methods for daily entries into trends. Here we want to introduce the convenient one. Do it automatically with a software that is able to find entry and exits and can profitably trade even without being in a longer trend. The trader then could mutate into an investor.
Strong words, but they have some truth in them. A software that has enough trading intelligence built in, so that it gets along with normal market conditions, should do even better when it gets applied to this preselection of trending growth chances.
If the trading program is able to extract a profit from a price just fluctuating around and only showing sporadically signs of regularity, it will carve out many more runs in a trending environment.
This is part two of the growth trend trading equation. Use a software that produces daily trading signals for any stock and concentrate your efforts on the selection of the right stocks. While this program is designed to do sort of a microtrading with daily signals, some additional trading rules could be used to make a longer holding period possible.
It could be as simple as something like this:
- If the stock is x percent or more up from your entry price, just hold the stock and ignore further sell signals of the neuro trading system.
- If you got stopped out by the signal system below the x percent limit, just follow the signals until you catch an enduring part of the longer trend.
- You are now invested in the growth trend. Exit the growth story if some other more compelling investing chance in an earlier phase of its life cycle shows up and then enter that with the same daily entry technique.
You will be astonished how relaxed trading can be – and this is real trading with applying a stop loss rule, not just buy and hold. Simply delegate the hot entry phase to the signal trading software and then allocate your energy more to long-term chart interpretations and strategic research.