We’ve all heard the phrase “the trend is your friend” or “trade with the trend”. I do agree with both of those statements; however, something as simple as following a trend can be very difficult for many traders and investors.
The problem is the time frame. For example, when looking at a one-year stock chart there can be several different trends going on simultaneously. One person can be concentrating on a one-week up trend while another person can be focusing on a one-month sideways trend. All the while the overall could be going down.
For traders, having multiple time frames gives them more flexibility to establish entry and exit points. But for the long-term investor, all of these different trends can be quite confusing or even detrimental.
Let’s say you bought a stock because a friend said it’s going through the roof. You could end up losing a lot of money because your friend may be looking at the stock from a day trading perspective, but you just bought the stock as a long-term investment. Those two time frames usually don’t mesh well.
If somebody recommends buying a particular stock, are they going to be around to tell you when to sell? Not likely. It’s for those reasons I am not a big fan of stock picks. I feel that every trader and investor should be able to analyze and choose their own stocks. If we can blame others for our losses, then we certainly can’t take credit for our gains.
Yes, the trend is your friend. But we must learn how to choose our trends, and our friends, very wisely.