Does trend-following work in short-term trading or better use mean-reversion?

[Redneck]

MT,

If you'll permit me Sir

When you understand that prices look the same on all time frames,

Price may..., or may not appear (look) the same

But fact is.., it is the exact same

By switching to different TFs (time samples) it simply provides a different perspective..., a different reference..., a different vantage point

It's all the same. Just different time frames.

Absolutely no question..., price is the exact same no matter the TF (time sample)

One's perspective is what changes / evolves - quite often becomes muddled


RN

 

[jajuanm2]

Macro trends do exist but you have to catch them after major correction or start of new IPO. If you missed a chance to get in at the start of the trend the risk to reward will not work out. Usually 1 or 2 trends make your profit for the whole year. If you are looking at an already established trend then I would focus on RTM with the trend.

 

[trhudson]

Short-term here means holding up to at most 1 week. Does trend-trading work under such short time horizon? Or should one better stick to mean-reversion techniques for short-term time frame?

If one does not use any sort of Risk Management / Position Sizing Techniques, neither one will likely work.

 

[Pricechange]

Macro trends do exist but you have to catch them after major correction or start of new IPO. If you missed a chance to get in at the start of the trend the risk to reward will not work out. Usually 1 or 2 trends make your profit for the whole year. If you are looking at an already established trend then I would focus on RTM with the trend.

Yes for short term and day trading RTM, I like it, it works pretty well. But I also trade macro trends a lot (my background is economics so I am not so much of a trader but rather a longer term investor) ...so, for instance, right now....

I would use RTM on the 5 min chart with a liquid instrument (es contracts) and then on the 15 or 30 min chart I would trade the trend (probably with options on es).

or yesterday...the short term showed sideways trading (good for RTM) but the longer term chart showed that the es failed to reach new highs after several attempts and option volume grew for es puts on futures...so you could continue to trade RTM on a daytrade and after seeing longer term charts... buy puts. If you feel the market trend is downward over a longer term then, once the short term brakes below your mean by more than 2 standard deviations you may want to discontinue the RTM and follow the trend with other strategies.

Its not so much about price but rather using tools to anticipate and profit from "future" price. Never an easy thing. But when the market has gone 5 years without a correction it becomes easier. Anytime a price becomes well extended above or below its running mean it gets a little easier.

As stated above in more than one post, when strictly trading short term liquid instruments, price is absolutely the same regardless of what time frame you use...and that is very key to becoming a successful trader (trading by definition is a shorter horizon activity). Not to stray out of your disciplines as an active trader as your vision could easily become muddled