The stock market is a volatile market full of market fluctuations related to trends within the economic market nationally and internationally. Those who hold stock in those companies with trends that may affect the price of their stock want to make sure to trade the stock if a trend is going to cause a downward trend in the price of the stock. Though it is not always possible to know how particular events are going to affect the price of a company’s stock, holding onto it until this is determined is a wise move for the new investor.
Certainly, holding onto stock for a week or more after a trend that may affect the price of stock in a downward swing can be a bad move if the trend causes a permanent downward trend as in an unfriendly merger or a company going out of business. However, in most cases, if the event does cause a downward trend, it will recover itself, and you can still trade the stock at a profit. Only the highly experienced trader should attempt to determine how an event may affect the price of stock and trade based on his perception. Even experience is not always an advantage because what one feels the market is going to do may not be what really happens, and thus creates a completely different event that was perceived. Of course, the experienced fundamental trader knows this, but a beginning trader is likely to become frustrated and upset with himself for making an incorrect assumption.
With experience, the beginner learns how to make his decisions, and that includes momentum trading. This process involves following stocks that are escalating rapidly and jumping on board in order to make the high possible profit while the trend continues. This is likely to happen with new entries to the stock market that show huge promise or those who have been around for some time but have recently begun to show higher than normal profits. In these situations, you want to follow the momentum and purchase the stock while the price is still low, while following the trend and trading it while the momentum is still high and before the stock prices level out or even decrease. Knowing when to trade the stock is the key issue when using this trading strategy.