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John Lohmeier of Enterprise Advisory, invites you to reprint this article in your publication, ezine, or on your website.

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    The Importance of Trend Following in Stock Market Investing
    Copyright © 2006, John Lohmeier

    "It is the direction of the price movement that counts.  It is 
    always probable, but never certain, that the direction of the 
    price movement will continue.  Soon after it reverses is time 
    enough to sell.  You should sell when you wish you had sold 
    sooner, never when you think the top has arrived.  That way you 
    will never get the very best price - by hindsight your individual 
    transactions will never look daring.  But some of your profits 
    will be large; and your losses should be quite small.  That is 
    all that is necessary for a satisfactory, enriching investment 
    performance."
    
    What Edgar Genstein is talking about is the core of investment 
    strategy - trend following.  While he explains it in an academic 
    sense, I prefer to be more visual.
    
    Picture a beautiful sun setting over the mountains; let's say 
    there are three of them and one is bigger than the other two. 
    Now pretend that you are hiking in these mountains, (not me 
    because I am afraid of heights) and you are scaling the first 
    one; it's not the tallest but you get to the top and the view is 
    nice but you see the second taller mountain.  You start to hike 
    down the mountain and then jump across a ravine to the next 
    mountain.  It's a steeper climb but you get to the top.  The 
    views are stunning until clouds roll in and fog distorts your 
    view.  You see that it is clear over on the next mountain so you 
    climb down the steep terrain and take a flying leap across to the 
    next mountain where it is a smoother, easier climb to the top 
    where you reach a flat area where you can get refreshed, rest, 
    eat and prepare for the next part of your journey.  
    
    This is the journey of a trend follower.  You don't stay on a 
    mountain forever, and you know that you have to go down sometimes 
    to get to the next trend.  Climbing mountains can be exciting, 
    but trend following is a very disciplined style of unemotional 
    investing - boring yet effective.
    
    The key with trend following is relativity to the market. You 
    want to ride the trend to beat the market indices. If you put an 
    absolute return goal on your stock investment performance, you 
    will be disappointed most of the time.  Following the trends will 
    work in bull and bear markets.  Neither lasts forever and the 
    more flexible and realistic you are, the less emotion you will 
    have to enable you to make better decisions.  That's why trend 
    following works; it eliminates the emotion in investing and 
    creates the necessary discipline for success.
    
    When you look at a chart on the S&P 500 for the end of 2005, 
    stocks were banging their heads on resistance at a triple top 
    that, yes, does look like a mountain range.    It held the market 
    back but eventually broke above it in early January so a longer 
    rally upward could be unfolding here.  Watch the trend as the 
    first quarter unfolds and follow it to improve your chances of 
    beating the market.
     
    



    Writer's Resource Box:
    John Lohmeier is President and Chief Investment Officer of 
    Enterprise Trust Co., http://www.EnterpriseAdvisory.com, a 
    Nevada-based trust and investment company.  He employs several 
    different quantitative long-short models that follow trends 
    to provide market-beating performance for his clients.  
    He can be reached at 1-877-ENTER01 (1-877-368-3701).




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