If you buy into stocks going up, you’ll capture uptrends. If you buy into stocks going down, you’ll capture downtrends. You can’t control how far a trend can go or when it will reverse, but it’s up to you to decide which part of the move you are trying to have exposure in.
Going back on charts to study past trades is the best way for an individual trader to learn. While we need to make trading decisions at the right edge of a chart, looking at the entry and exit in the middle of a chart is a great way to evaluate the trade.
Below is a chart of my TPL momentum trade looking to buy strength in an uptrend to sell also into strength when price gets over-extended to the upside. The green arrow marks my buy and the red arrow shows where I got out. No giveback with a lower low in a typical trend-following exit. In that particular case the exit was well captured, but the drawback with selling into strength is that the stock may very well continue to go higher. This is why I diversify across different strategies.
I’m not looking to buy low and sell high. It’s okay to buy high if there is probability with a good risk / reward bet to sell it higher. However, the main message here is not to buy stocks trending lower. It’s a higher probability that they keep trending lower for some time. Things in motion tend to stay in motion. That’s what momentum is all about!Share this post