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Trend Following by TrendFollower

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Thank you very much for your prompt response and I agree with your sentiments. Also arguing on the internet is not professional and it does not help either one of us. It affects both our credibility. There is no positive outcome. 

Thanks again, much appreciated.

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I just came across this which I found very interesting. 

Trend Following Strategies: Examining The Whipsaw


This articles explains rather well the difficulties faced by trend followers:

Commentary: Is short the new long?


The following article offers a differing view and presents a more balanced view on trend following. 

One of Wall Street’s Most Popular Trading Strategies Is Now Failing


Please do bear in mind that the article above is referring to Trend Following Quants using automated systems. 

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thanks @ TrendFollower for all your helpful info about this subject. A lot of funds seem to be slowly allocating less funds to TF - like the well known Winton, as your link says.

Out of curiosity as you are a specialist in the TF field, what approximately (I don't need exact figures) have been your TF % annual returns after the costs of Spread-betting over say the last 5 years? Do you feel that these returns are better / worse than other strategies like buy & hold or even discretionary day trading, which I read you sometimes partake in. Thanks. 

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Trend Following tends to have its cycles of use when it comes to Hedge Funds and Institutional investors. No doubt in the future there will be an improved method of trend following which some of them may adopt. Right now it does not seem to be the go to strategy. One must remember they use automated trend following strategies where as we can add a human touch to the trading which machines cannot. 

I would not say I am a specialist in the Trend Following field. I merely follow Trend Following principles and tweak them to suit my personality and trading style. I am afraid I would not disclose my personal returns over five years on a forum. Also, I do not just use spread betting completely for my trend following strategy. Spread Betting is only a mere small element to my overall investment / trading portfolio. I am an investor first and that forms the majority of my portfolio. Trading is a very small part of it.

I do not know if my returns are better or worse than other strategies like buy and hold even discretionary day trading. If someone buys near the lows and sells near the highs then I can see this being a far more profitable strategy than Trend Following. However it is far more difficult to execute than Trend Following. It is also requires far more time, dedicated research and a higher level of fundamental and technical analysis to even have a chance of buying low and selling high. A lot of buy and hold investors do just that, buy and hold. They never sell or don't want to sell and therefore miss out on optimum times to sell to have maximised their profit from their capital investment. 

Trend Following as its flaws and one of them being that you will incur a greater number of losses due to false trend breakouts, quick, sharp and hard trend reversals and price not behaving according to indicators and conforming to technical analysis, etc. Trend Followers in general are likely to make more losing trades than winning trades. The key element is that the winning trades must make them a larger profit than the losses on their losing trades. 

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I am aware of all of the above but you will not disclose the 'lolly' will you - why not ?

So you make 5, 7.4, 15.2  or 29.8% I do not care. I want to know your returns per annum. Come on now. I will tell you mine : 12.3%. YOUR TURN. I mean you giving the figure is not gong to 'effect' you is it ? ! 

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First of all, I have no idea who you are. I could give you any made up figure, what does that mean? How can you confirm any accuracy or credibility of any figures I give? You cannot. The 12.3% figure you have given is totally meaningless as there is no way I can quantify that you make that per annum. Therefore it is utterly pointless. I do not wish to disclose that material not just to you but anyone here on the IG Community. That is my personal decision. I have never asked anyone what returns they make per annum as that is a personal question and personal information. 

Also your 12.3% returns are relating to which investment or trading strategy? Does it relate to trend following, scalping, swing trading, etc? Over how many years? Are you making 12.3% every year for the last twenty years or is that over the past one or two years?

Why do you want to know my returns per annum? I don't want to know your returns or anyone else returns on the IG Community. If it makes you feel better, my returns per annum are 0.1% per annum. That is the best answer you will get from me. Or better still my returns are (minus) -99.9% per annum.

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From a Trend Following perspective, Cryptocurrencies, are providing an excellent short term to possibly medium term trading opportunity. I mainly trade Commodities and Cryptocurrencies using such trading principles.

One must be able to adapt and trade based on price action alone. There will be many who think Cryptocurrencies like Bitcoin are junk and are going to fail and go down to zero. They may be right. I do not know at this stage. Psychologically they will not be able to trade Cryptocurrencies based on their bias and emotion. One must put fundamentals to one side when using Trend Following principles and trade purely based on price action. This will ensure that opportunities are not missed. They provide a platform for quick returns though one must not take their eye off the ball as they can come crashing down at any stage so risk management and effective stop losses is a must.

If Cryptocurrencies come crashing down then one must be confident enough to 'short' them based on the same Trend Following principles used to go 'long'. If indicators indicate a trend reversal and the price action is bearish and you think Cryptocurrencies are going make a new 'lower low' then one must be ready to go 'short'. Right now the only trade is 'long'. 

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I am getting messages asking me how I decide which trends to trade?

It takes a lot of time and price monitoring first and foremost.

Then one must apply indicators to establish if certain parameters and criteria are met for further consideration.

After this a look at the volume and strength of the trend along with momentum.

One could also have a look at the fundamental outlook and see if the technical narrative is in line with the fundamental narrative. There are many occasions when you will see a distinct disconnect between the two. Ideally and this is especially true for Commodities when the fundamental narrative connects with the technical narrative then it can produce some of the best and strongest trends to trade both on the long and short side.

Even after all of the above the trade can fail so there simply is not a magic answer. One is merely trying to put the odds and probability of a successful trade in their favour that is all. I do use my feelings and gut instincts based on my experience too. I am not always right of course but there are many factors, information and data one can use to make an informed trading decision. I do not have the perfect answer to this question. I ask myself are the odds and probability in my favour if I place this trade on the  'long' or 'short' side. If the answer is no then I simply do not trade it. Even when the answer has been yes I have failed such as trying to short the S&P 500 though I was initially successful then we witnessed a massive rally and it is back to where it was before the huge drop. 

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A few of you have messaged me stating you find it difficult to go long when something is continually rising in price. I accept this is difficult and not easy. I have never suggested following 'Trend Following' principles is easy. In fact it tends to go against our normal emotions and psychology. As humans we want to buy something that is reducing in price. Here a trend follower would look too short. When something is rising in price a trend follower would look to go long. If it was easy then all traders try to trend follow would be profitable and this is simply not the case. There is huge 'Execution Risk'

There can be a lot of technical analysis overkill. I tend to keep my trading strategy and system very simple. I do not believe in trying to complicate things as if I cannot understand a trading strategy or system then how can I use it to trade? One must understand their own trading strategy and system and how it works. This is fundamental and where a lot of traders go wrong. They do lots of reading and listen to lots of experts but then simply cannot apply if affectively due to:

  • lack of knowledge
  • lack of experience
  • lack of understanding
  • lack of capital

When I am looking to identify trends I never think the prices are going up so I must not go long or the prices have been declining for a while now so I must not go short. Of course ideally one would want to identify the breakouts and trends as early as possible. There is really only one way of doing this.

That is to follow the price action and treat it like a religion. Follow the price action of the assets you are interested in and apply time, effort, passion, enthusiasm and dedication, which should lead you to identify potential trends to trade at an earlier stage. I always tell myself the price is never to high to go long and never to low to go short. Those that do find themselves missing some of the best, strongest and profitable trading opportunities both on the long and short side.

I remember reading somewhere and I cannot remember where that:

Follow the price action and you will be on the path of least resistance

Another important thing that I always do is not to set profit targets. I want the highest profits I can achieve and do not want to exit early and make less profit on a strong long term trend than I would have if I had merely stayed and potentially added to my position. I want to stay in the trend for as long as possible. Once I am in a winning position then I set a 'trailing stop' and will exit when this is executed meaning I will always exit a winning position with a profit. 

I always try to trade the trend rather than any specific asset. So it could be Cryptocurrencies, Commodities, Bonds, Indices, etc. It does not matter what the asset is. It is the trend that is important and that is what I am trying to trade. This will also help me increase my odds of finding more stronger trends to trade rather than concentrating on just say indices or FX. 

Trend Following is not easy and not every trade will be profitable. In fact it is possible that more trades using this methodology make losses. There are many different ways to trade and many trading styles and principles one could follow. Trend Following suits my personality but if it does not suit your personality then you must find another trading style that does. One must not force a trading style that one does not appreciate, understand or can apply.

Trend Following is not for everyone but I think subconsciously everyone is some form of trend follower as you want to make money when the price moves in the direction of your trade and this in its simplicity is trend following whether one accepts it or not. It may be short term trend following but many will be applying some of the principles of trend following without realising. 

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One of the issues that is brought to my attention is when traders set themselves profit targets. Now I am not suggesting there is anything wrong with this. However, from a 'trend following' perspective there is no place for profit targets in my personal opinion.

The reason why I think this is because profit targets are merely predictions. They are nothing more. None of us have a crystal ball. So when one sets a profit target then from a 'trend following' perspective one is likely to miss some of the gains from the trends by exiting too early. This is one of the cardinal sins when trend following. One must let their winners run and not exit too early.

Now as far as I am concerned there is no trading style or trading methodology that can predict the direction the market is going to take in the future. As we cannot tell the future, we simply cannot map out the direction of the trend and the direction the price is going to move going forwards. Even if we had some canny ability to map out the price direction going forwards or even map out the direction of the trend in the future then the asset in question is not obliged to move the way we think it will / should move. 

One of the most important concepts in trading regardless of trading style is understanding 'Odds and Probability' and how one can increase the odds / probability in their favour when placing a trade. 

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I am getting a lot of messages asking which markets I think are trending. Well all three of the major US indices are trending upwards - Dow Jones, S&P and Nasdaq. Bitcoin is trending upwards. Lumber and Orange Juice are trending downwards. I could go on and on. This is where you must conduct your own research, dedicate some serious time to identify trends and put some effort in. There is no easy or magic solution to making profits. 

When assets within specific markets are trending strongly then they can provide the best returns whether that be going 'Long' or going 'Short'. 

Rather than respond to many messages I have received recently, I find it easier to post a generic message here which saves me a lot of time as I know that many of you are following this and my other threads.

Now people are asking me should they go 'Long' on the S&P 500. Well if it is making new higher highs then why not? Yes it would be risky but at least you would be trading with the trend rather than against it. You could patiently wait for the next drop before entering. The S&P could continue just to go higher and higher making new highs, though I do not know this will in fact happen.

In terms of Bitcoin all I would say to those who have messaged me is to look at the price action, look at the trend, look back at this thread and some of the trend following principles included and use it amongst other things such as your own research, trading plan, own thinking, etc. to make an informed trading decision.

What I will not do is tell anyone on the IG Community what to trade and when. I do not have a crystal ball and nor can I tell the future. Yes, I will have ideas, gut feelings / instincts, thoughts but I will not advise anyone else what to trade, how to trade and when to trade. I will merely share potential trading ideas or my own trades and others will have to make up their own minds. 

Trend Following as been around for many years. It has died many times. It has re-emerged many times. I have no doubt that it will die and reappear again going forwards. Trading with the trend rather than against it makes sense to me. It is as simple as we want to make it. 

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