One of the most famous sayings in the stock market is “the trend is your friend.” The logic behind the phrase is that trends are powerful forces in the financial world. Stocks that are rising often tend to keep rising while stocks that are falling tend to keep falling.
Of course, the trend is only your ‘friend’ if you’re going with it. If you’re going against, it can be an absolute nightmare. This brings me to Sirius Minerals (LSE: SXX) shares. SXX’s share price is down nearly 25% over the last month, off nearly 80% over the last three months, and by around 87% over the last year.
Clearly, the trend here is down. And the problem, in my view, is that with no news in relation to how the group will fund its key potash project after it cancelled its bond sale last month, there’s nothing to stop the stock falling further.
The company has no revenues or profits, and not a lot of cash left. So, what’s to stop the share price falling to 2p, 1p, or even 0p? Given its nasty downward trend, I wouldn’t want to be holding SXX right now. Here, the trend is not your friend.
Plenty of stocks are trending up
But the good news is that you don’t need to look too far to find stocks that are trending up and making their investors wealthier.
For example, one of my favourite small-cap stocks is Alpha FX, which provides foreign currency services to small- and medium-sized companies, recently surged to an all-time high after the company issued a great trading update. AFX shares are up around 26% over the last six months and ahead around 66% over the last year. I own AFX, and I’ll be holding onto my shares, given the upward trend.
JD Sports Fashion is another good example of a stock that’s trending up. Over the last six months, JD shares have risen around 22%, while over the last year, they’ve nearly doubled. This is another stock I hold in my portfolio and will be holding onto.
Finally, check out fast-growing technology group Softcat. This is a stock I bought last week after the group issued another excellent set of results. While Softcat’s share price growth may have stalled a little in recent months, if you zoom out on a chart, you’ll see that the long-term trend is clearly up. Over the last three years, the stock has risen from around 300p to near 940p.
Given that the company has considerable momentum right now, I believe it’s only a matter of time until the shares continue their upward climb.
In summary, holding onto a stock that has uncertain prospects and is clearly trending down can cost you a lot of money. Focusing on companies that have momentum and are trending up is generally a much more profitable investment strategy.
Of course, picking the right shares and the strategy to be successful in the stock market isn't easy. But you can get ahead of the herd by reading the Motley Fool's FREE guide, “10 Steps To Making A Million In The Market”.
The Motley Fool's experts show how a seven-figure-sum stock portfolio is within the reach of many ordinary investors in this straightforward step-by-step guide.
Edward Sheldon owns shares in Alpha FX, Softcat and JD Sports Fashion. The Motley Fool UK has recommended Alpha FX and Softcat. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.