Tuesday, 15 June 2010

Sideway Trends

When the price of an asset, e.g. a stock moves sideways, it is difficult to trade on momentum and apply the trend-following techniques because a trend reverses shortly after it is established.

Once a sideways trend is identified, one can profit by investing long or short once a stock price touches the lower or upper trend line.

(Another strategy is also to write/sell options to collect premiums.)

Sideways trends can persist for a long time.  Nevertheless, it is also important to know how to stop such a short-term trading technique when longer-term trends return.

Those with long-term goals may or may not wish to incorporate the above short-term trading techniques for a small portion of their selected good quality stocks which are in obvious sideway trends.  However, always remember to buy low, that is, at prices that are closer to the lower price boundary.

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