Trend trading is a type of investment strategy in which traders try to identify the major trend of a particular security and then trade with it. For example, if they notice that a particular stock has been moving upward for a certain amount time, they will place a buy order. With the same idea, they could also place a short order with a stock that is on the way down.

Momentum

Traders that use this strategy will often use the line "the trend is your friend." They believe that it is better to go with the trend than to try to trade against it. This is also sometimes referred to as momentum trading.

Benefits

One of the benefits of this type of trading is that you are trading with a stock that has already proven to be successful. You are not trying to pick stocks that have been underperforming and hope that you are right about them. Instead, you already know that the stock has the ability to increase in value because it has done so in the past.

Risk

The big risk with this strategy is that you might get in at the wrong time. If you do not time it correctly, the stock could reverse directions.

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