One of the most basic strategies for achieving the most gains in the stock market is to invest based on trends.  In the simplest terms, this strategy allows investors to capitalize on stocks moving in a particular direction. While it might seem that the obvious choice is to invest when a stock is on an upward trend — with the stocks earning progressively higher gains over a long period — but it’s also possible to make money in the short term on downward trending stocks, which have progressively lower highs.

Trend investing requires paying close attention to the technical aspects of trading, watching how certain stocks perform over time and accurately predicting whether the trend will continue, using tools like predefined trend searches. You can learn more about those tools here, but they aren’t the only factors to keep in mind when making your investment decisions. You should also understand certain myths that have tripped up other investors, so you can avoid the same mistakes.

Myth #1: Fundamental Trends Don’t Matter

Many investors focus on specific companies, watching a particular stock’s performance over time and investing based on those numbers. While that’s important, you also cannot underestimate the important of fundamental trends, or the overall shifts within the economy or an industry that can influence a stock’s performance.

For example, in the late 1990s and early 2000s, many publishers dismissed the rise of the e-book, claiming that consumers would never give up on printed books. Even when Amazon introduced the phenomenally successful Kindle e-reader, many publishing industry experts claimed it wouldn’t last. Today, e-books significantly outsell printed books, and those publishers that didn’t adjust their business models accordingly saw major losses. Bottom line? Even though a company might be doing great now, you cannot ignore the overall trends that influence sales and their impact on stock performance.

Myth #2: Trends are Permanent

Roller skating. Troll dolls. Boy bands. What do all of these things have in common? At one point or another, they were all the hottest thing going — and today, the only time you hear anything about them is when they appear on some list of nostalgic items. By definition, trends are impermanent things — even in the world of investments.

The stock that’s hot today might be in the tank tomorrow. The idea behind trend investing is to learn to identify when trends are reversing direction, and act accordingly. It’s important to identify the low points that are normal, and which signify an overall change. Understand that it’s very unlikely that a stock will continue in the same direction indefinitely.

Myth #3:You Will Always Make Large Gains

Trend investing is not the right strategy if you want to make huge gains quickly. In fact, you won’t always earn major dividends on the investments you make based on upward trends. Trends can happen slowly, so while you will steady gains, they may not appear immediately significant.

By the same token, you can lose money with a trend investing strategy. If you fail to predict shifts in trends accurately, or wait too long to act, you could risk any gains you have made. That is why you must be vigilant and aware of all of the factors influencing your investments.

Myth #4: Trend Investing Takes Away the Risk

Some investors rely on trends to guide their investments under the misguided impression that because a stock has made consistent gains, it will continue to do so — and therefore, you can confidently invest without fear. The truth is there is always risk when it comes to investing. You have to determine your own risk threshold and make choices accordingly, understanding that there is no such thing as a 100 percent guarantee that you’ll earn gains without any losses.

Myth #5: You Should Bet Everything on Trends

Trends are a useful — and effective — tool for making investment decisions, but you should never put all of your proverbial eggs in one basket. Risking everything on a particular trend is never a smart move, as trends shift quickly, and a single misstep could mean major losses. Regardless of how much you plan to invest and your overall goals, you should always maintain a diverse portfolio to protect against losses and changes in the market.

Trend investing is one of the most common, and smartest, ways to make investment decisions and maximize your money. Do not let misconceptions and myths take you off the path toward success.