The Importance Of The Long Term Trend When Investing In Shares
Topics: shares, stocks, investing, trading, investing in shares, stock market investing, long term trend
Obviously when you invest in shares you are looking for the share price to go up, but you have to carefully consider the probability of this happening when you make an investment decision. One way you can dramatically place the odds in your favour is to consult the long-term trend.
By long-term trend I mean looking at the weekly, monthly and maybe even the quarterly charts of the companies you are interested in investing in. If the price chart is sloping upwards on these time frames, then you obviously have a share that it is in a firmly established long-term upwards trend. These are the best companies to be investing in because they are usually strong growth companies and so now it’s just a case of getting your timing right.
To do this I personally like to use the daily charts for my entry point. It stands to reason that if a company’s share price is rising over the longer time frames, then a good entry point would be when it is temporarily oversold on the shorter time frame, ie the daily chart. So I will often use technical indicators such as RSI, Stochastics and MACD to find shares that are currently in oversold territory according to all three of these indicators so that I can buy these shares at a good price. As long as they are trending upwards on the longer time charts, then this is usually a good place to start buying.
Of course in this bear market there are a lot less shares that are in long term upward trends so therefore it is a lot harder to make money trading this way. However a lot of savvy investors switch to short-term trading during bear markets so they can benefit from falling share prices.
One way you can do this is to simply switch the investing strategy I mentioned above. In other words you look for shares that are trending downwards on the weekly and monthly charts and then wait until they are in overbought territory on the daily charts. This will often prove to be a profitable strategy because you always get mini-rallies during bear markets which present good opportunities to take out new short positions.
The main point I want to get across in this article is that it’s always important to consult the long-term trend because this will tell you which direction you should be trading. It’s always a lot easier to make money trading with the trend than against it.
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