Several ET threads over the past year or so have discussed the use of technical analysis (TA) by retail traders versus its use by hedge funds and other large institutional traders.
Some posters have said that hedge funds frequently do use chart-based TA methods including indicators, especially indicators like moving averages. Others expressed skepticism that TA and charts are used at all; instead, the focus is on market- and company-specific data, economic numbers, etc. to evaluate potential new trades via fundamental analysis.
My reading over the years has suggested that many hedge funds used to employ some version of the method referred to as “Trend Following”. Historically this approach involved using defined rules for buying breakouts when prices go up and then exiting later when prices begin going against the position. Entry and exit rules were based on things like breaks of N day highs with or without indicator channel lines (e.g., Donchian channels) or moving averages, etc. that can be seen on charts. Win rates were low, often only 20-30% or so, but the systems make money because a few trades catch big trends and ride them for long periods of time.
Several books have been written about this type of classical trend following, including books by Andreas Clenow, Michael Covel, Greyserman & Kaminski and others.
My question for all those who may have knowledge in this area is:
Do many hedge funds and other large volume traders still use Trend Following-based technical analysis methods like this? i.e., is classical Trend Following dead?
Some posters have said that hedge funds frequently do use chart-based TA methods including indicators, especially indicators like moving averages. Others expressed skepticism that TA and charts are used at all; instead, the focus is on market- and company-specific data, economic numbers, etc. to evaluate potential new trades via fundamental analysis.
My reading over the years has suggested that many hedge funds used to employ some version of the method referred to as “Trend Following”. Historically this approach involved using defined rules for buying breakouts when prices go up and then exiting later when prices begin going against the position. Entry and exit rules were based on things like breaks of N day highs with or without indicator channel lines (e.g., Donchian channels) or moving averages, etc. that can be seen on charts. Win rates were low, often only 20-30% or so, but the systems make money because a few trades catch big trends and ride them for long periods of time.
Several books have been written about this type of classical trend following, including books by Andreas Clenow, Michael Covel, Greyserman & Kaminski and others.
My question for all those who may have knowledge in this area is:
Do many hedge funds and other large volume traders still use Trend Following-based technical analysis methods like this? i.e., is classical Trend Following dead?
