There is Trend Following and there is Trend Investing. There are similarities and there are differences. Sometimes one is better and sometimes the other one is more feasible.
In general Trend Following the financial markets has the following characteristics:
Both long-term investors and traders like to know what the historical performance is of a trend indicator. Find out here what profit/loss ratio and what percentage of successful trades you can expect when you use a proven long-term trend signal.
Before going to the data, let’s answer first some fundamental questions. Why would we look at historical investment results at all? Everybody knows that history does not offer a guarantee for future performance. Still, I think it is wise to study the past. History does not always repeat itself, but often it does. And often is good enough for me.
Last week, the German DAX stock market index showed a Death Cross. This is the event where the 50-day moving average dives under the 200-day moving average. The death cross is one of the oldest sell-signals in technical stock market analysis. Other trend following signals, however, did not generate a sell-signal. Why is that?
The answer to this question lays in the fact that different trend following signals seek a different balance between timeliness and accuracy. Good trend signals are designed for a specific investing purpose.
Some investors like to take a cautious, traditional, approach. They prefer to be rather safe than sorry. When they perceive that it becomes more risky to be invested in the stock market, they prefer to sell and stay in cash.
What do you do with your index funds when the long-term trend still points up but recent market declines could also be the start of a new massive downturn? The answer depends probably on your attitude towards risk. Here is a tool that we have developed to help you in making these decisions.
More risk-prone investors would like to hold on to their funds. In case the market re-bounces, they avoid any loss and are well positioned to capitalize on the coming bull market. They accept some additional losses in the case the market trend really turns down.
Which trend following book to read depends on how you intend to apply what you learn in this book.
There are two different types of readers of trend following books:
Traders spend a considerable amount of time each day or week on managing their money and trades. They aim to make a living or additional substantial income from trading.
Michael Covel has written many books about trend following. Further below you find a list of his most well known books.
Before buying and reading any of the books written by Covel, be aware of what you can expect. Michael Covel is a firm believer and promoter of the trend following idea. His books will tell you why it works and how it works. Do not expect any arguments in the books against trend following that he cannot handle.
If you want to start trend following with stocks and funds, read attached PDF. In this free PDF you find the basic tools for trend following. And you can read in the PDF how to use these tools.
You find the Trend Following PDF at the bottom of this web page. Just click on the link there and you can download the PDF. If you do not find the PDF at the bottom of the page where you read this now, please click here to go to the original location of this article.
Trend Following like professionals can be an expensive investment strategy
Some Trend Following strategies are only suitable for professionals. Others are just the right approach for people with savings who are not a professional investor. Here you get a high level overview of what different type of strategies are out there.