Trend traders aka riders are people than locate a trend on a market and ride it out until its end. This might sound easy, but it requires a lot of management and constant observation. If the stock goes up the trader is in the money. Trend riders don’t care about ups and downs that happened during the trend. The most important thing for this kind of the investor is that the price is going up.
The basics of trend trading
The trend trading is not for the meek and emotional people. To become a successful trend hunter, you have to remove the emotions from the business. Instinct is also obsolete in this business type. An individual that invests in this way has to follow predetermined rules. Any deviation from those rules might end in a partial or complete loss. It all comes down to the management of the risk. To do this properly, the investor has to use market price and volatility and the account balance.
The very nature of trend trading is the reaction to the market. It starts with the initial investment that has to correspond to the amount of the cash left on the account. As the market shifts up and down the investor has to increase or decrease the investment size. The point is not to be too jumpy and abandon an asset due to the fear of the price going down.
Why do people jump on the trend trains?
The question has several answers that we will list and several others you will have to find for yourselves.
Even the down market can generate a profit. But the trader needs to follow the ongoing trend all the way to its conclusion. An experienced trader will turn big cash around with a trend like that.
Contrary to other short-term trading that involves everything from fundamental analysis to assisting software like Online Wealth Markets, the trend rider doesn’t require the info those things provide. Once the investor located a trend and invests in it, the profit is guaranteed. The only unknown in that kind of the deal is the amount of the profit the trader will earn.
The job of the trend trader is to react to the trend and not to predict it. He will not predict the end of the trend or its beginning; he will react to the changes that happen. Predictions will interfere with the strict rules that compose this strategy, and they are a big no.
Trend rider will always aim at the maximum return, and that means to ride the trend to the very end. To achieve that and to maximize the returns the trader has to manage the risk. The investor has exit protocol that will get him out of the deal at any possible moment. That might reduce the returns, but if the trader decided that the risk exceeds the possible returns, then they will pull back. In that way, they will still have a profit which can be invested in other stocks.
This is the question on which the majority of people would and will fail to answer. In the ever-changing world of different exchange markets and the plethora of the traders, who among them considers themselves as a momentum trader? Well, the answer is not as simple as you might think. The basic answer to the question is indeed simple. But to convey the full explanation that is understandable by everyone is a task that requires a bit more extensive article.
So, who are those momentum jumpers?
Yes, jumpers. Why, because they jump on the momentum of the trade. A trader like this will wait for the obvious signs of an acceleration of the price movement, and they will buy in on the deal, taking the position they find favorable. The speed of the movement determines the extent of the return these people make.
Mental discipline is one of the primary requirements for this kind of exchange. The trader has to wait for the price to reach the certain speed to jump on it. Failure to wait might backfire as the movement may slow down or draw to a halt. We can recognize two types of momentum jumpers:
- The event-based momentum trader will jump on the deal that follows a large event that will obviously have an effect on the certain stock. The volatility of the market becomes very high after the release of the news (the event). That increased volatility may last for several hours, and during those hours the price goes up and down in uncontrolled patterns. This is the right trading environment for this type of trader. In those several hours, he invests in the asset numerous times, changing the calls as the price goes.
- Technical-based traders base their investment on the expectations versus reality on the market. They use the reasoning that the prices of the stock don’t reflect the true value of the same. They buy or sell the stock and wait for the price to reach its real value.
Some basic momentum strategies
A large number of these trades happen within an hour, and it is hard to keep the greed out of the way. Inexperienced players fail to make a profit simply because they don’t know when to pull out of the trade. Evading the saturation point is something every trader will have to learn if they want to earn money with this type of business.
An experienced momentum jumper will work only two hours per day, the beginning hour of the trading and the closing hour. The increased volatility at these times allows the trader to increase the amount of potential return. One of the basic rules of momentum trading is to close every trade, no matter whether it closes on the loss.
Other exchanges have their momentum traders as well. Even in the binary options trading and its big brokers you can find momentum investors just click here. They keep on buying options with the same underlying asset, only changing their calls according to the changes in the price movement.
The difference between these two types of exchange is evident. The active deals aim at fast turnover while passive trader seeks long-term investments. Due to this, they look for markets with different volatility. The effort they place into various aspects of the trading is also evidently different. Active traders might read everything about some company, investigate it to the bone and then decide to invest. Passive investors want the return from the investment, but they don’t want to spend hours upon hours glued to the screen filled with financial reports. Each of these two types has their advantages that appeal to certain groups of people.
The fanaticism of active traders
Active traders mind borders on the fanaticism. They think about the stocks and possible trades at every point of the day. Those that have to trade as their primary source of cash spend almost every minute of the day glued to the charts, news and other sources of economical info. The thorough investigation that results in a successful trade is the goal of an active trader. The larger a number of trades they hit per day, more energy and willpower they have to continue like that tomorrow and the day after that.
Active traders want to profit as fast as they can get it, and many of them limit themselves on day trades. This allows them to invest in price fluctuation of the stock in the short period. They rely on technical, rather than fundamental analysis. They take on multiple trades per day to increase the possible profit.
You can also find this kind of people in binary options as well. It’s hard to recognize them as many use auto-trading software http://cybermentors.org.uk/ to skip over the research and analysis stage. This rarely works as they bring no insight into the trading with themselves.
One of the negative sides of this type of investment plan is that there is no actual long-term plan. An active trader can earn a lot within a span of days, but they can lose all of than in the same time frame.
The patience of the passive traders
Passive traders will gladly perform the research and check for the state of the industry as well. Once they complete all the preparations, they will invest their money in the shares, and they will wait. They buy the shares and wait for the right moment to sell them. That moment might happen in three months, or it might take two years for the price to go up. A passive trader is willing to wait for no matter the time, as long as he earns his share at the end.
The party that enters this kind of deal doesn’t bother with daily price changes and other short-term data. The price of their asset is the only thing they are interested in. The majority of passive traders respect the ten percent rule. This rule states that if the price goes down where the investor risks losses over ten percent of the investment they sell it, as it is, to keep the loss at a minimum.