Portfolio Management Theory: Trendfollowing

Quote from horribilicus:

Trendfollowing is not "Portfolio Management Theory", it is a simple method of choosing when to enter and exit trades. You can apply it to a single instrument (e.g. the USD/CAD forex pair) if you wish; you can follow trends without having or managing a portfolio.

Trendfollowing requires two things: (1) Trends, and (2) following them. The basic idea is simplicity itself:
  • Wait until it is screamingly obvious that a trend is underway
  • After it's screamingly obvious a trend is underway, enter a position in the direction of the trend. If the trend is up, go long. If the trend is down, go short
  • Hold your position until it is screamingly obvious that the trend is over
  • After it's screamingly obvious the trend is over, exit your position
That's it. That's the big idea, in four simple bullet points. Various bullshitters and blowhards have tried to expand these simple points into $1000 courses and book length discussions (for example, this book) and now it seems, lengthy monologues on ET. But the idea is simplicity itself.

You will need to do some technical work to define "when is a trend obviously underway" and "when is a trend obviously over". This need not be complicated; one famous trend following proponent says "look at the chart from ten feet away. If you see a trend, then it's a trend."

And if you decide to actually place trades, you'll have to make some generic trading decisions: how much will I risk, what instruments will I trade, and so forth. You would have to make these same decisions no matter what entry/exit method you trade; they are not unique to "trend following".
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it's screamingly obvious, he read this book, and hasn't risk anything yet...
 
>>>>>>>>>>>>>>>>>>Beta Calculated
The number is calculated for you (thank goodness) using regression analysis. The whole market, which for this purpose is considered the S&P 500, is assigned a beta of 1. There is no single index used to calculate beta, although the S&P 500 is probably the most common proxy for the market as a whole.
Stocks that have a beta greater than 1 have greater price volatility than the overall market and are more risky.

Stocks with a beta of 1 fluctuate in price at the same rate as the market.

Stocks with a beta of less than 1 have less price volatility than the market and are less risky.

http://stocks.about.com/od/evaluatingstocks/a/beta120904.htm


..low volatility linearity can be applied to stock screens:

Criteria:
Beta less then 1.0
Making new 52 wk highs (long candidates)
Making new 52 wk lows (short candidates)

Now you just need to find a stocks screener that lets you screen for this.
 
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