The Trend is your Friend, but a Trailing Stop is your Best Friend!

I had a mixed feeling on the current bull run. I was definitely happy that my stock went up(of course who wouldn’t be?), but at the same time I was apprehensive of the movement.

Generally, I was apprehensive on the whole market as from my last analysis, the market was overbought, with lots of stocks already breaking their resistance and reaching the RSI overbought line a week ago. I expected that any upward movement for the week that passed might just be some form of a last salvo from the bulls. I was expecting a correction, and I was expecting it to hit hard and fast just as the bull run did, that’s why I am very apprehensive. I was afraid that the profit I now have might just be snatched away by a sudden correction. I had two options, sell once my target price has been reached or try to maximize my profit but with the risk of being caught in a selling stampede during the correction.

But last Saturday night’s EB took my worries away. I got reminded of the phrase, the “Trend is your Friend”. A stock movement that is trending upward is your friend, and you just would have to ride the trend.

The next question I had was, how would I be able to confirm if the Trend is really my friend? As what Danny has emphasized time and again, look at the volume!. The volume would tell you how true your friend is to you. Commenting a line from Wilson, “if there is volume there is a commitment”. If the upward trend is accompanied by large volume, it confirms that the upward trend is not likely to return to the take off level. Because there is a large volume accompanying the trend, there is a large confirmed commitment from the new owners that they are not likely to sell the stock at a price lower than their buying level.

But…even friends become worst of enemies… I wouldn’t discount the possibility of a trend encountering a correction; of course it’s not a perpetual upward trend. If the Trend is your friend, then a Trailing Stop is a Trader’s best friend! If you’re a Maverick trader who likes to maximize profits way beyond a target price, then I suggest that you start to be-friend the Trailing Stop. A trailing stop saves you from a back stabbing Trend friend by protecting your profit. Too bad my current broker, a Broker Persistently Inaccessible, doesn’t have a Trailing stop facility. If it did, I wouldn’t be apprehensive of maximizing my profit. But come to think of it do other online trading systems have a trailing stop?