Trend Trading Systems
We have received many inquiries about why SmarTrend alerts normally arrive after a particular stock or ETF has made a move higher or lower. This is not a flaw but actually a distinct advantage of trend trading vs. other systems. SmarTrend relies on statistics in determining whether a certain move higher or lower could be the start of a new trend or is merely a bounce. Only when a certain threshold, or tipping point, has been reached will an alert be issued. The data is then further analyzed overnight when the entire day's pricing data has been received in an attempt to achieve a higher degree of accuracy. The graph below for EXM illustrates this point. A Downtrend was called on February 2nd at $6.10. Several days later, the stock went as high as $9.07 but then ultimately fell to $3.25. Similarly, after SmarTrend issued an Uptrend on April 9th at $6.82, the stock moved sideways and slightly lower to $6.05 before it reached as high as $11.70 two months later.
While not all trend alerts receive instant gratification, a stock should move in the direction of the trend according to the statistical approach SmarTrend employs. It is not feasible to predict bottoms using trend trading as no one can ascertain, with any degree of certainty, whether a 5% move down is just a minor correction or the start of a much larger bearish move as was witnessed in many stocks during 2008 and early 2009. Trying to pick bottoms during that time period led to significant losses - but not if you followed the trend and waited for a confirmed reversal.
[caption id="attachment_68" align="alignleft" width="600" caption="EXM SmarTrend Chart"]
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