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There are several different methods of investing in stocks and trading in stocks. One popular tactic is trend trading of stocks. Many people use this kind of stock trading, for example investors who see trends as beneficial sources of profit.

%NL% As a matter of investment strategy, the factors such as the market movements and trading volumes are taken into account while trading in stocks. Once a stock is selected, its price movements are analyzed. To qualify as a trending stock, the price of the stock should move in a particular direction successively over a period of time. The period may be in days or weeks for short term trend trading and for long-term investments, it may be in months or years.

The most significant thing in trend trading is that the price movement should display a momentum in a particular direction. The direction of price movements may be upwards or downwards but it should be consecutive or continuous. Using this method, you expect the price of a stock, which has gone up in the last two days, to continue to go up in the next few days. Similarly, if the price was going downwards, it should continue to go down in its momentum.

Once the trending direction of particular stock is identified, you can buy the stock at the prevailing price and hold as long as the trend continues in the same direction. If the momentum trend is broken and the trend reverses, then you should sell the stock as soon as possible and should not continue to hold the stock. If you continue to hold the stock after it has reversed the direction, you could lose not only the notional gains achieved but also end up losing.

In addition, you should always stick to your chosen time frame while trend trading. If you buy a stock that is trending up on a monthly basis, you need to check only its monthly performance. You can do this by tracking its monthly closing prices. If it drops in price within the month, you can ignore this. Although the price may fluctuate weekly, pay attention to the monthly trend. Similarly, if you buy a stock that is trending up over the past weeks, ignore its daily fluctuations and pay attention to its weekly closing price.

The myth that trend trading is only done by short-term traders is untrue. If you are investing in stocks for longer periods of months or years it is easy to apply this stock trading method to your benefit. Whether looking at long or short term investing this is certainly an appealing option, but it does require continual market monitoring in order to gain its advantage. Therefore, those who buy stocks and forget about them for whatever reason will not be able to utilize this method properly.