areecep wrote a post · Apr 8, 2024 06:54

Trend stocks and cyclical stocks require different approaches:

Trend Stocks:
These are characterized by short-term rapid increases triggered by technological innovations, monetary policies, industry policies, etc.
Performance is typically represented by a 45-degree upward slope, with various technical indicators showing overbought conditions.
They are like sprinters, emphasizing speed and intensity. Your approach should be to get on board immediately, without waiting or hesitating, until the sprinter stops.
Identifying the point at which it gets off is relatively easy, usually when it breaks through the moving average that has been supporting it. Because sprinting is all about maintaining momentum; once it stops, the momentum fades, and the trend weakens.

Another method to identify the exit point for trend stocks is by observing their call implied volatility (IV). When the implied volatility of options is significantly higher than historical highs, it often serves as a signal to exit.

Cyclical Stocks:
These are influenced by factors such as monetary policies, inventory levels, seasonal cycles, etc., which may lead to wave-like patterns over different timeframes.
For example: commodities follow inventory cycles (which I don't understand), small-cap stocks follow monetary policy cycles (rate hikes, rate cuts), and indices follow seasonal cycles (bottoming out every October, rallying around Christmas).
For these cyclically driven stocks, it's advisable to wait for pullbacks and buy at the trough. However, chasing highs like with trend stocks is not recommended.