Remember PokemonGo?
Remember back in 2016 when everyone you knew and maybe even you yourself had downloaded PokemonGo? Remember how in a matter of months the number of downloads were so much that their servers couldn’t handle it? And where is that game now? I’m pretty sure most of us have uninstalled it.
The term most people use to describe such an event is ‘a trend’. 'Trend'ing tweets, videos are things that are getting a lot of attention. The word ‘trend’ is used in the context of trading as well. Trends where something is becoming popular is called an uptrend and a trend where something is becoming unpopular is a downtrend.
When you come across a trend, you can do one of three things;
You may ignore the trend and choose to do nothing about it. Like the person who never bothered to install PokemonGo.
You may go with the trend, download the game and join in the fun with everyone.
You may go against the trend, and do the exact opposite of what is happening.
The methodology I am going to show you is based on “going with the trend”.
When stocks are in an uptrend they tend to keep going up and eventually begin to fall. Similarly, when stocks are in a downtrend they tend to fall and eventually rise again.
PokemonGo is a classic example of an uptrend where more and more people bought in and eventually realised it wasn’t all they expected it to be and that led to it becoming unpopular soon.
We see trends in the stock markets very very often. The reason stocks rise and then fall or fall and then rise is because we humans tend to overreact to the slightest information. This causes wave like shapes in the prices of stocks.
Bitcoins are another hot selling item that everyone is talking about. Just google “bitcoin monthly chart” and you will see a current, super huge uptrend.
Today I have given you an idea of what we are going to formulate our trading strategy on- Trends!
A more professional word for what we are going to learn is “Swing Trading”. As a swing trader you will try and identify the start of a trend and base a strategy that enters at the start and then will exit before the trend reverses so as to make a decent profit while limiting your losses. You will simply follow the trend.
Before we go further, I need to draw your attention to an important point. This whole concept is based on technical analysis. Technical analysis is based on past data (charts etc.) which you will begin to understand by the end of the week.
Here is the best part - you will at no point need to go and read a company's profit and loss account or it's balance sheet. You will not have to analyse a company’s earnings or attend it’s AGMs. We will keep things as simple as possible so we have minimal, rather close to no number crunching and complicated math at all!
I am very eager to share the first strategy which you can implement but before I do so, I need to build a base so you can truly understand what I am telling you and don’t follow me blindly.
In the next post (See here), I will be showing you how to read some complex looking charts which are in reality very simple.
I promise you that by the 5th article you will have learnt your first trading strategy. So watch this space closely.
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See you soon trader!