The reason trend traders make money in the long term, is due to supply and demand, and the flow of capital through equities, currencies, commodities, and future contracts. These tend to trend in one direction or the other at different times. Trend traders and trend followers are ready to capitalize on those trends by letting the market determine their buy and sell decisions. They always seek to be on the right side of the market.
Here is why it works:
- Bear markets have no supports; they keep falling until a new support level is found.
- Bull markets have no resistance, and they keep going up until a new resistance level is found.
- The world’s capital is always looking to find returns; this flow causes trends to emerge.
- Monster stocks can double due to earnings growth expectations.
- Currencies can plunge based on fear of a nations solvency.
- Commodities can rise to absurd levels based on supply expectations.
- Fear can bring down markets, far below what anyone thinks is rational.
- Greed can inflate markets far above any reasonable valuations.
- Trend traders are not predicting price action, they are simply following it. They let reality guide them, not opinions.
- Markets tend to trend, and systems that are able to capture those trends and minimize losses in choppy environments, are robust in the long term.