Investors are at times the opposite of traders. Real trend traders use a stop and investors don’t. All right, stopping out of a position that was bought on value considerations makes no sense. But, why don’t investors ignore that there are trends? Some even like to do counter trend trading. That’s the sort of thing trend traders call catching the falling knife.
Trend trading without using the stop loss technique is best described as trend investing. If you don’t want to use the stop system, you should have some trading edge with a strong statistical advantage.
The solution to this investing conundrum are growth stocks. Sometimes commodities produce trends that are to some degree foreseeable, but the reliability of an enduring company’s growth trend is still unsurpassed. Given that the company has the right product, of course.
The right timing for growth trend investing is done by the whole market. Buy in bearish times and sell in bullish times or hold on to your growth stocks and ride them until they are tired.
Instead of the stop loss method something else has to be implemented. Trading and even more investing is a game of probabilities, and many investments won’t play out. The growth investor’s stop system is simply an exchange with another growth stock.
An alternative for the market timing is the always fully invested version. Is this the right thing to do? Hard to say, from the viewpoint of a trader’s mind, the answer surely would be no. But investors think differently. If it is hard for them to be just real trend traders, meaning to ignore valuations and jump on any momentum stock with crazy earnings multiples, it may be also impossible to time the index correctly.
One idea is to use the first down quarter for revenues or even earnings as a selling signal. Still, the exchange method of fresh growth traded for tired growth, has a severe disadvantage compared to price trend trading.
Often the price will tell you dramatically that the growth begins to sputter ahead of the earnings and revenues lines. Substantial losses against the all-time high like fifty or more percent are not seldom. In the end the question arises, why not combine growth stock investing with real trend trading? As usual, investors won’t know the answer. They do not even notice the question.
Finally, there is another alternative for the progressive trend investor. The combination of day trading and growth investing may sound silly, but there is something in it that investors will like. After they eventually got onto a growth stock by means of day trading, they are allowed to switch their trading system to the buy and hold mode.