Trend trading is often compared and contrasted with day trading. Day traders are those who, typically, open and close a position in a stock the same trading session. That means that they try not to have any open positions in any stock at the close of the trading day. Day traders do sometimes hold for longer than that, but not much longer. On the other hand, it’s also true that there are short-term trend traders who may only hold an opened position for 15 to 30 minutes.
Trend trading strategies are fundamentally different from those of the day trader, however. While a day trader is trying to capitalize on volatility, the trend trader is trying to make non-volatile decisions. A trend trader may hold a position in a stock for weeks, months, or even a year or so. Trend traders are interested in liquidity, not volatility, for the most part.
What are the strategic underpinnings of the trend trader? Why is this a superior trading strategy to day trading for many, many people?
*Trend trading does not require minute-by-minute market monitoring.
*Even short-term trend trading is not as stressful as day trading.
*Trend traders can get paid stock dividends as an added bonus.
*Trend trading allows for more patience, which means that changes that take place in the more-distant future can be capitalized upon.
Short-term trend traders can adjust their time horizons accordingly with their next entered-into position if they sense the need to do so.
However, no system is perfect, and trend trading does have some strategic pitfalls that must be accounted for.
*A day’s good news can be wiped out overnight or the very next day, which can be disheartening and frustrating, and if your time horizon is short-term it can be a profit-killer.
*You have to be very astute about your stop-loss orders. Screwing these up can cost you a bundle of money.
*The longer your trading horizon, the more opportunities for profits you have but the more risk you run of losing focus and missing the golden opportunity.
Some people use a variant on the theme of trend trading–counter-trend trading. This is a favorite method of the contrarian investors, whose philosophy is that to be successful you must always do the exact opposite of what the vast majority of other investors are doing. This strategy involves applying the “buy low-sell high” strategy to trend trading. So an upward trend is a sell signal, whereas a downward trend is a buy signal to them.
So, trend trading strategies differ pretty significantly from day trader strategies, even in the short term. This needs to be kept in mind at all times.
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