Trend following is one of the trading strategies that you use to find trending stocks. There are different strategies that you can use to trade the market, and trend following is the best in a trending market. However, you should not apply the trend following strategy to a trend range market where a stock is trading in a specific range.
If you apply trend following strategies recently, you could find winners like BAC and AAPL.
Trend Following Strategies
There are various ways that you can use to find trending stocks. Here are a few of them.
1. Trend Line – Draw trend lines on a chart and see if a stock is trending higher. Make sure the stock price stays above the trend line. You can draw trend lines manually or you can use a trading software like MarketClub where you can draw directly on the chart. The green triangles on the chart are buying signals generated by MarketClub and the red triangles are selling signals.
2. Moving Average Orders – You can use a few moving averages or exponential moving averages and arrange them in ascending orders. For example, you can use a 5-day EMA, 10-day EMA and a 20-day EMA. When the 5-day EMA is above the 10-day EMA, and the 10-day EMA is above the 20-day EMA, that is a signal for a trending stock.
On 1/5, the following chart triggers a buy signal for BAC where the 5-day EMA is above the 10-day EMA and the 10-day EMA just crossover the 20-day EMA. The stock then went from $6.32 a share to $8.03. That is a 27% gain in 5 weeks.
3. Overbought Stocks – If you use a technical indicator such as RSI or stochastic, you can easily find if a stock is overbought. If RSI is above 70 or stochastic is above 80, the stock is overbought. However, a trending stock will stay in the overbought area for a long time. You can easily find these stocks with the free stock screener at http://www.dojispace.com
a) Find the stochastic crossover scan
b) Select the stochastic value between 80 and 100
c) Click the Submit button next to it and you will get a list of stocks that are overbought.
4. ADX Indicator – ADX is a technical indicator that measures strength of a trend. When ADX is above 25, the stock is in a strong trend. If the value is over 30, that means the trend is even stronger. Again, you can find these stocks for free on http://www.dojispace.com
a) Find the ADX Crossover
b) Select ADX Value >= 25 (You can set this value to 30 or 35 for extremely strong trends)
c) Click the submit button next to it and you will get a list of stocks with strong trend.
5. Daily Trending Stocks – This is a free service by INO where you can get the daily top 50 trending stocks. These are great stocks for day traders and swing traders. Click here to check it out.
There are other ways to find trending stocks, but these are pretty good strategies that you can use.
Free Trending Following Report
If you want to learn more about trending following, read the following article and get a free 10-page report on how you can high probability trading opportunities using moving averages.
The Trend Is Your Friend: How Moving Averages Can Improve Your Market Analysis
