What It Means to Be a Trend Follower
A trend followerbuys when the price trend is up and sells when the pricetrend is down. A trend follower believes that, if the trend is up then it willcontinue to go up; therefore, trend followers make the assumption thattrends persist. If everything works as expected, the trend continues longenough to yield a profitable trade.Why Should the Trend Continue?There’s good reason why the trend persists.Most trends are the result of government economic policy. In the U.S. the Federal Reserve (Fed) targetsan economic growth of 3 percent. In order to accomplish that in a bad econ-omy, they will lower interest rates. First they lower rates by 0.5 percent to seehow the economy reacts. Then they lower rates by another 0.5 percent and watch Figures.This process of ratcheting down interest .
FIGURE
Interest rates drive the stock market.Top: 10-year notes continuationseries. Bottom: S&P 500 Index. There’s a clear relationship between interest rates and the stock respond. T-note prices begin going up in January 2000 (interest rates declining), but the stock market has not yet reacted.rates causes a trend in all of the markets that depend on rates and all com-panies that have debt-which is pretty nearly all of them The biggest trends usually begin with a change in interest rates. Some-times, the beginning can be a change in the value of the U.S. dollar. The dol-lar can drop when the U.S. imports much more than it exports. When you buyforeign products, you buy their currency as well.
Expectation
also drives prices. Will a hot summer cause a shortage ofelectricity, or a shortage of water? Will a weakening economy reduce the
number of airline passengers and shorten hotel stays? Will the economystrengthen or weaken? These events don’t occur overnight;they evolve gradually .Prices rise and fall in anticipation.
Courtesy CopyrightTechnical trading.com .This content copyrights protected Written by Pery J. Kaufmam.
A trend followerbuys when the price trend is up and sells when the pricetrend is down. A trend follower believes that, if the trend is up then it willcontinue to go up; therefore, trend followers make the assumption thattrends persist. If everything works as expected, the trend continues longenough to yield a profitable trade.Why Should the Trend Continue?There’s good reason why the trend persists.Most trends are the result of government economic policy. In the U.S. the Federal Reserve (Fed) targetsan economic growth of 3 percent. In order to accomplish that in a bad econ-omy, they will lower interest rates. First they lower rates by 0.5 percent to seehow the economy reacts. Then they lower rates by another 0.5 percent and watch Figures.This process of ratcheting down interest .
FIGURE
Interest rates drive the stock market.Top: 10-year notes continuationseries. Bottom: S&P 500 Index. There’s a clear relationship between interest rates and the stock respond. T-note prices begin going up in January 2000 (interest rates declining), but the stock market has not yet reacted.rates causes a trend in all of the markets that depend on rates and all com-panies that have debt-which is pretty nearly all of them The biggest trends usually begin with a change in interest rates. Some-times, the beginning can be a change in the value of the U.S. dollar. The dol-lar can drop when the U.S. imports much more than it exports. When you buyforeign products, you buy their currency as well.
Expectation
also drives prices. Will a hot summer cause a shortage ofelectricity, or a shortage of water? Will a weakening economy reduce the
number of airline passengers and shorten hotel stays? Will the economystrengthen or weaken? These events don’t occur overnight;they evolve gradually .Prices rise and fall in anticipation.
Courtesy CopyrightTechnical trading.com .This content copyrights protected Written by Pery J. Kaufmam.