Trend Trading Explained

Abstract

There is a plethora of different methodologies to trade stocks. Many are published in academic journals, books, magazines, websites and online social trading platforms. The methods range from statistical models, machine learning, artificial intelligence, to technical and fundamental analysis to name a few. We won’t even attempt to make a comprehensive list. Amongst these methods are also mechanical trading systems, which don’t have as many assumptions behind them. They simply follow an iterative rule that is determined only by the price itself. Trend trading belongs to this category. The primary assumption that it makes is that the stock stays in the trend it was in, unless the stock price exhibited such unusual behavior that it warrants a trend reversal. In a previous paper we have gone over “The Philosophy of Trend Following” where you can take an even deeper look at it.

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