Personal Finance

How to Choose a Trend-Following System

11/10/06 - 03:36 PM EST


"Imagination is more important than knowledge. Knowledge is limited. Imagination encircles the world." -- Albert Einstein

Like the candy in Willy Wonka's Chocolate Factory, there is a seemingly endless variety of trend-following flavors in the marketplace. There are trend-following systems that deal with individual stocks, and those that use index funds as their investment vehicle. There are programs that generate signals on a daily or weekly basis, and those that issue signals only a few times a year. Some are based on very complex technical models, while others are quite simple.

How do you find the trend-following system that is right for you?

Look Inside

First and foremost, consider your investment style. Are you an investor or a trader? The traditional definition of a trader paints someone who is focused on exploiting shorter-term market starts and stops, while investors hold a view of the longer-term market direction and prefer to trade infrequently.

Traders and aggressive investors often favor trend-following systems that focus on individual stocks. It can be more dangerous to play with individual stocks, but for some, the potential high returns are worth the higher risk. Other systems use broad market trends as represented by major stock market indices like the Nasdaq Composite index and the Russell 2000, and the index funds or exchange-traded funds (ETFs) that track them.

There are trends within trends, from those visible one-minute charts to patterns that develop over months or years. More aggressive traders and investors also seek to exploit short-term imbalances. Just keep in mind the shorter the time frame, the more trading begins to resemble gambling. When you focus on short-term trends, it's very easy to get whipsawed.

Previous «
1 2 3 4
Frank Minssieux is president and co-founder of TimingCube, a broad market trend-following model, and originator of its Trend Timing newsletter. Minssieux invites your questions and will answer as many as possible in future columns.

TheStreet.com has a revenue-sharing relationship with Trader's Library under which it receives a portion of the revenue from purchases by customers directed there from TheStreet.com.


Investing A-to-Z

Personal Finance

Go To Section Home


10/05/06
The Right Way to Diversify

The trend-follower says to pay attention to company size and location.


09/25/06
Getting Technical

This trend-follower says technical analysis is the best way to go.


09/12/06
Trend-Followers Live Above the Fray

Bull market or bear market, trend investors enjoy the ups and downs and respond accordingly.


08/25/06
Guiding Principles of Trend-Following

The goal isn't about being right. It's about making money.


04/28/08
Cramer's Take on the Top 10 Searched Stocks

Apple and AT&T were among the most searched stocks on TheStreet.com Friday. Here's what Cramer had to say about them recently.


04/26/08
Jim Cramer's Best Blogs

Catch up on his thinking on the hottest topics of the past week.


04/26/08
Coming Week: Make or Break

Investors will have to deal with a Fed meeting and another flood of earnings and economic data.


04/27/08
This Week's Barron's Roundup

Looking for deep value with Defiance Asset Management, polling big investors about where the market's headed, plus much more.


04/28/08
Monday's Analysts' Upgrades, Downgrades

See who made what calls.


02/29/08
3 Stocks I Saw On TV

3 Stocks I Saw On TVDan Fitzpatrick examines three stocks viewed on Fast Money and Mad Money Today's stocks include Deere & Co., Petrobras and MBIA


04/28/08
One Bank Pick Stumbles, the Other Soars

TheStreet.com Ratings checks in on First Community Bancorp and First Niagara Financial Group two months after recommending the stock.


04/28/08
Grand Theft Auto IV Hits the Jackpot

Take-Two's latest hit receives a perfect score from industry reviewers.


Your Recent Quotes: Quote Up0 | Quote Down0
Dow S&P 500 NASDAQ
Oil*
Gold
10 Yr
0.00%
%
%
%
Data delayed 20 min
Premium Stock Ideas
Access Action Alerts Plus to find out Cramer’s latest picks now!