The first rule of trading is trade with the trend, hence the expression “let the trend be your friend”. Take a look at the chart below. What is the probability that the share price will be at $38 again at the end of next month?

If you said yes, then you have said what is on every mum and dad’s wish list who purchased the stock at $38 and have held it for the last few years. However, if you said no, then you were right. This stock continued to fall at roughly the same rate it had been falling previously, closing below $15 one month later.

By saying no, you have also successfully completed the most important part of share trading. And that is identifying what is the dominant trend. This stock has been in a downtrend for the last few years. This is the long term trend of the stock up to this point. Within this chart, you should also be able to spot a number of medium term trends. Because the long term trend is bearish, the medium term up trends are shorter than the medium term down trends. Trading this stock during the majority of this time frame meant that you would be often trading against the trend in which the share price more than halved.

There is little point to holding a stock that is not providing any growth as there will be better opportunities elsewhere.