This document discusses trend trading, which is a method of investing in stocks that follows trends rather than trying to predict tops and bottoms. It states that stocks move in up, down, and sideways trends rather than simple patterns. The trend trading method involves waiting for a stock to move sideways to form a base before buying after it breaks out of the sideways range in the direction of the new trend. This allows traders to avoid "fake" trends and reduce their risk by not trying to call exact tops and bottoms. The document provides an example of how trend trading can be applied.

1. Report: Trend Trading
A whole library could probably be created to house the infinite methods of investing
in the stock market. Obviously the goal is to find the best one that you understand
how to use and the one that brings in the most profit, of course.
When it all boils down to it, trading stocks can be as simple as you want it to be, and
that is what I am about to share with you: the idea of the trading trends. Basically
the type of trade states that stocks do not move in simple up and down
patterns, rather there are up, down, and sideway movements. All three inputs
are what create three distinct trends. Taking this further we find odds of a slumping
stock is less likely to just
skyrocket back up before
experiencing some form of
sideways movement, also called
consolidation.
What is the significance of all
this? Our risk has been
minimized greatly. With the
trend trading, we are not
looking to spot tops or bottoms,
but we are looking to lock in on
the stock after the new trend
has been created. We wait for the stock to build a foundation in the
consolidation period, and then jump on it after the stock breaks out of its
sideways trading range.
The beauty of the trading trends is that it allows us to avoid “fake” trends.
How many times do traders think they have called a bottom only to get duped into
the stock heading even lower,
which results in a loss trade?
Once again, by waiting for the
sideways movement to complete,
we can see whether the stock is
actually planning on
continuining the lower trend or
if the stock is, indeed, heading
towards an upward trend.
For the trend trade, our price
target is at the spot of resistance
or support of where breakage occurs. That point then turns into the support or
resistance.
TREND TRADING – PRESENTED BY THE WILD INVESTOR © 2009 1

2. In the example of Energy Conversions (ENER), we see the stock eventually hit a
point of resistance (higher blue line). Many people would jump at the conclusion
that the stock had topped out, so they might possibly short the stock. Later down
the road, ENER created the support (bottom blue line). Now these shorters probably
got scared and tried to cover themselves by going long and spending excess money
on commissions and other losses.
The bottom line is that we do not have a clear sense of which direction the stock
wants go. In the example of the first chart above (INDU), we see the chart go into a
consolidation period. At that time, many people thought we hit a bottom. The
problem was that we actually did not. In fact, we just created a even stronger
downtrend.
Overall the trading trends is meant for those looking for a simple and limited­
risk trading method that allows them to profit off solid trends. Using other
technical analysis and chart patterns, we can obviously extend our use of trend
trading.
2 TREND TRADING – PRESENTED BY THE WILD INVESTOR © 2009