Trend Following Option Trading Investment Strategy
For those of you reading this that have been trading for a while now, the term “trend” will likely be nothing particularly new to you. What you may not have heard about however, is the trend trading strategy, and how to use it to its full potential.
If you are new to trading or are just starting to establish your investment portfolio, you would do wise to brew up a strong coffee and get yourself comfortable, as we are going to take you through exactly what the trend strategy is and how best to use it.
What is a trend?
A “trend” is a direction or judgement of a stock prices general heading. What trends do is allow us to filter out all of the minor, minute to minute discrepancies and fluctuations. They allow us to focus more on the bigger picture, and see the stock price in a more holistic overview.
By approaching our options prices in this way, we are able to make slightly more longer term trades than you might be making in your average day to day trading, and thus find and ride a particularly profitable wave for as long as possible.
The trick to trading on trends is to be ready when companies make announcements and watching financial calendars. To a certain extent, you could say that this is the secret to all successful trading strategies. But this is especially true when trading on trends. Doing thorough research about the options you want to trade in prior to making any investment, is the key factor which separates the highly successful traders from the rest of the pack.
One of the most important things to understand about trends is that they typically form a longer term investment than most of your other trading strategies. You might even end up riding an uptrend or down trend for weeks or months at a time.
Get-out or ride the reverse
Equally important as knowing when to stick on the uptrend or down trend, is sensing when that trend might be about to turn around. When that happens, you need to know about it right away, and be prepared to get out or if the conditions are right ride the reverse trend.
If you break from a trend too soon and you are going to miss a valuable investment opportunity, this is especially true if there is a sharp reversal in the trend.
When you start to get more involved with predicting trends, you will see that a lot of charts and graphs are used to represent the decline or growth. Pay special attention to these graphs. Look for patterns, or try to match up the shape of the graph with corresponding external factors which may have influenced the prices. The more you can get to grips with the history of what went on, the more likely you will be to be able to make an accurate prediction on the future.