Trend Following Blog
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About Trend Following Blog
The premise of trend following is simple: Trends are everywhere, always coming and going. Markets are no different. Trend following does not try to anticipate the beginning or end of a trend; it reacts to one once it is apparent. As a result, it is not predictive. Learn more
It is simply a rule-based trading system that takes into account both price and time, to find the best entry points for long and short positions. Many traders have their own models, methods and indicators to identify a trend; however, these can often produce conflicting signals, underscoring the subjective nature of spotting trends.
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Unlike mean reversion strategies, trend following has “fat” right tails and is less prone to drawdowns. This is because it does not rely on speculation or hunches.
The key to successful trend following is to let profits run and cut losses short. This can be a hard pill to swallow for new traders as it often results in many small wins, rather than the occasional lump sum gain. However, most humans prefer steady gains to large losses. If you do not mind the small winners, you can achieve excellent returns with a relatively low volatility and risk profile.
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