Trending or Trading?

[sharriss]

Hello All,

I'm new to trading, in fact I haven't actually started yet - I'm just researching and "pretend trading" - making the decisions to buy or sell and seeing how much I would have made / lost if I had really put the money in.

Anyway, I'm looking at the difference between trend following and buying in a trading range. It seems to me that as you have to pay for each transaction you make then you will increase your profit margin if you make fewer transactions. Which logically leads to long term trend following. All you need to do if seek out the stocks that lend themselves to long term trends, set up a nice MA, get in at the start of a trend and stay with it for the next few months. Obviously it isn't quite that simple but it seem easier than prediction.

Can anyone give me the case for prediction within trading ranges?

Cheers,
Steve

 

[StockBaron]

Steve, I'm not too clear why you see these as the only (or alternative) options.

Buying/Shorting trending stocks, providing you can spot them, act on them and get out is a good strategy.

As is buying/shorting on a breakout from a trading range.

Worrying about numbers of transactions and dealing costs is probably not the biggest issue.

 

[TBS]

I'm new to trading, in fact I haven't actually started yet - I'm just researching and "pretend trading" - making the decisions to buy or sell and seeing how much I would have made / lost if I had really put the money in.

By not having money riding on the trade you don't know how you would have reacted, so in reality cut your figues by at least 60%.


Anyway, I'm looking at the difference between trend following and buying in a trading range.

Two very different trading styles, both of which work as long as you recognise and define your buy and sell points, combined with your money management and apetite for risk.

It seems to me that as you have to pay for each transaction you make then you will increase your profit margin if you make fewer transactions. Which logically leads to long term trend following.

Not necessarily, your trade has to be profitable to start with. Most people only recognise a 'long term trend' once it is well established and probably ready to stop - Plus, define 'long term'.

All you need to do if seek out the stocks that lend themselves to long term trends, set up a nice MA, get in at the start of a trend and stay with it for the next few months.

So you want to fit an MA to suit your chart? dangerous stuff. You need a reality check on 'getting in at the start'.


Obviously it isn't quite that simple but it seem easier than prediction.

Correct, by a long long way. Personally, I think you need to be replacing the word 'prediction' with 'probability'. Nothing in the market can 'predict' but there is plenty you can do to increase your 'probability' of making a profit - and that sits in a complete understanding of your time/money/risk constraints, what products you are trading and forming a solid trade plan around each individual trade.