It means that you should trade with the trend of the market to increase your chances of success. Something like going with the flow.
A trend is defined that prices are steadily moving higher or lower over a period of time. It is consider an uptrend if prices are rising over time. It is considered a downtrend if prices are declining over a period of time.
Prices are more likely to continue in that same direction than reverse. You put the odds much more in your favor by trading this way. Other professional money managers trade with a trend-following philosophy and many commodity trading systems are built around trend-following formulas.
You never know how high or low a market is going to move. Therefore, if you are following trends, you are likely to catch some very profitable moves in the commodity markets.
Two common tips are:
- Buy when the market makes new highs. You will never miss entering trend that way. This is the hardest thing for many traders to do, that is why it is one of the most successful techniques.
- Buy on a pullback. If the market has been moving higher for ten days in a row, wait for a 2-3 day where prices decline and then buy.
Remember you still have to control your risk and protect your profits because trends don’t last forever.