“The trend is your friend” is a common and known sentence among many traders, speculators and investors. It has indeed some truth in it bu...
“The trend is your friend” is a common and known sentence among many traders, speculators and investors. It has indeed some truth in it but there are several other important and often neglected questions, which you need to be asking yourself before investing in something. It is true that trends, after they are properly set, tend to continue for a long time. But the real question is: how do you know for sure that a trend is indeed set?
This might look really easy to do when you look in retrospect. You call some indicators on your favorite technical analysis software, add up some numbers and then say “See, there is a nice and beautiful trend”. Ok, like I said, it is easy in retrospect, but try to imagine yourself looking at that same chart in the beginning of that trend, when it was just starting. Now it does not look so easy to figure out that this trend was indeed a profitable one.
That is the problem with many traders, while looking at retrospect everything looks quite easy to identify and profit from it. Especially with the use of some ready-made indicators that come as default in almost any technical analysis software these days. You know these ones: MACD, RSI, Stochastics, etc. They all try to gather sufficient data and then come up with just a single line to indicate when you should buy, when you should sell and when you should stay on the sidelines.
But if you have been trading for a while now, you know that this is far from truth. When looking in retrospect, yes, all these indicators look like they are really accurate and that you could use them for your future trades. But if you try to use them today, without knowing what will happen tomorrow, they might mislead you to the wrong path and you might end up losing money. So, make sure you do a full research on how exact are these indicators and how to use them according to market conditions.