Buck the Trend

Buck the trend is a colloquialism that refers to when a security's price moves in the opposite direction to the broad market. The move could be in either direction but typically occurs as a result of good performance in the face of negative broad market performance. For example, in February 2018, memory chip maker Micron “bucked the trend” and rose over 2% after providing a stronger-than-expected chip outlook, while the broader market (Standard and Poor’s 500 index) was down nearly 4% over the same period. Short-term traders often take positions in stocks or sectors that are bucking the trend of the overall market and showing signs of relative strength.

The term buck the trend often describes more than just security prices and can also include business and market fluctuations. If a company is recording increased sales while its competitors lose business, the company would be bucking the trend.

It may be a bullish signal when a stock resists a prevailing downtrend in its own industry or against the broad market. This suggests that investors have interest in the stock despite the negativity surrounding its competitors and peers. Market commentators may use the term when discussing the broader stock market in relation to presidential election cycles. For instance, in the final year of two-term presidencies dating back to 1928, the stock market has lost an average of 4%. In 2016, however, the stock market bucked the trend and rose 9.5%. (See also: Market Cycles: The Key to Maximum Returns.)

Traders can use multiple timeframes to create a buck-the-trend trading strategy. A 200-day moving average can be applied to the daily, hourly and 15-minute chart of a stock to determine a trend's direction. When the trader is looking for a buy entry point, the stock’s price should be trading well above its 200-day moving average on both the daily and hourly charts to show upward momentum. The buck-the-trend component of this trading strategy uses the 15-minute chart; traders can make an entry when the price bucks the trend on this shorter timeframe. This shows a temporary retracement in the long-term trend and provides a high probability trading opportunity.

Most investment professionals suggest trading in the direction of the prevailing long-term trend. Contrarian traders who attempt to profit from bucking the trend, such as by picking market tops and bottoms, should place a stop-loss order close to their entry point to close trades that don’t work out. (For more, see: Identify Tops & Topping Patterns with Surprising Accuracy.)