I have been learning and teaching options traders about technical analysis for many years. While there are numerous skills you must learn to be successful at analyzing market conditions, understanding and following the stock market trend and momentum are key (patience is important too).
Copyright: stockbroker / 123RF Stock Photo
Follow the stock market trend
When the stock market, a sports team or a thoroughbred stallion is in a positive uptrend, it is human nature to want to ride that momentum. We love a winner!
When a stock market trend is obvious – whether it’s bullish or bearish – it often pays handsomely to ride that trend out as long as possible.
Right now, we are in a long uptrend. In the past year, there have been few pullbacks (I read that we broke the record of the longest period without a 3% correction). “Buy the dip” has been the right strategy. It’s the only way to get in on the action when markets rally nearly 20% in just under a year’s time.
Fighting the trend is a fool’s errand
Some investors, traders and talking heads look for any excuse to fight the trend. It takes an iron gut to do that. You are wrong so often and for so long that you get left behind – until that magical moment arrives when you are finally right.
But like a broken clock that is right twice a day, you suffer many losses before you finally win. If you manage money for clients, they probably checked out a long time ago.
As I say all the time, trying to time the market is foolish. Do it, and you will fail miserably (99% of the time).
Bottom line: The stock market trend can be strong and last much longer than anyone could imagine. When the trend is obvious, why make your life difficult? Stay on board and watch your wealth increase. The trend is indeed your friend.