There is an long ago ancient Korean proverb on New York wall st called “The trend is your friend”. I don’t remember where I heard it from. Maybe I was in a Chinese restaurant on Wall Street or something. But I’ve always heard the saying called, “The trend is your friend”. Since it is such an old term, it must have some truth to it, right?
In the investment world there are a group of people called trend followers. They basically believe in the philosophy of markets trending up or trending down long term. Keep in mind there are many investment philosophies out there. Trend followers are only interested when the market is trending. Some of these trend followers have become famous but many of them are very low profile and under the radar. Some of the most famous hall of fame trend followers are Jesse Livermore, Nicholas Darvas, Gerald Loeb, Stan Weinstein, William O’Neil, Richard Donchian, Ed Seykota, Richard Dennis, and all the Turtle Traders to name a few.
Trend traders usually use moving averages, channel breakouts, and volume to help determine the direction of the trend. The asset classes used are usually stocks or the future markets. Once the trend is established the trend traders jump on the trend and try to ride it for as long as they can. They are not interested in predicting the market but are interested in riding the trend of the market. They also have risk management in place, but that varies on each trader. The idea is to minimize the losses and maximize the gains in the big trend. Little losses will happen to achieve large gains.
The next time you hear the saying “The trend is your friend”, there is some truth to it among trend following traders. The general concept of trend following traders does sound very simple. In reality it is quite simple.
Iras Fundistica talks about the monetary markets & Jim Cramer stock picks. She also mentions about some of the registered financial advisor topics of the week. On her days off she trots on the beach and does Exercise.
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