Staying on the Right Side of the Trend

Staying on the right side of the trend in the stock market is not only important, it's critical. It was this philosophy that made Jessie Livermore the greatest trader of all times.

And yet so many people refuse to trade with the trend for whatever reason. Maybe they are bottom pickers who can't imagine the stock market doing anything but go up, or maybe they are top pickers who want to catch the next big crash.

Whatever the reason you must understand that trying to trade against the flow of the market can be a terrible decision. It can amount to huge losses and put a big hole in your account. Let's take a look at some examples of where going against the trend could have hurt. LEH has been trending down since February when it was at $65.

There were people saying it can't go any lower when it hit $48. Any bottom pickers would have been disappointed when the stock dropped all the way the $7.7. And that isn't the only example; Countrywide, Fannie and Freddie were all examples of how powerful a trending stock could work for or against you. True these are extreme cases but there are always extreme cases in the stock market.

Trends aren't bad things. If you are moving in the same direction as it they can actually be a good thing. Some up trending stocks double or triple in value in a very short amount of time.

It is also important to be trading with the market average. When the market as a whole is trending the majority of stocks will be trending in the same direction. Following the trend of the overall market is one of the best things you can do to put the odds on your favor. And of course it is always good to have as many things going in your favor as possible.

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