Trend Following Research

[kut2k2]

Quote from marketsurfer:

Thanks kut. I'm happy to respectfully disagree with
You. This is what makes markets. You can buy strength I'll sell it and vice versa.

Good luck to you also!

Now I'm curious. Why should counter-trend trading be any more predictable than trend trading? If price moves randomly, both methods would be unprofitable, right?

 

[The Big D]

Quote from kut2k2:

Now I'm curious. Why should counter-trend trading be any more predictable than trend trading? If price moves randomly, both methods would be unprofitable, right?

True. However, since markets aren't random in that sense, who cares?

Most markets I've analyzed have a counter-trend bias at short time frames, and a trend bias on longer time frames. The doesn't mean you can't trade the opposite style, but the sophistication required of your entry decision making/filter is much higher if you're trading opposite the nature of the market.

 

[kut2k2]

Quote from The Big D:

This whole discussion seems to be wanting for an example of a working trend following system, so here's one:

On weekly bars the S&P has an upward bias in excess of basic returns when a given bar opens over the 40 bar EMA. It has a negative bias when a given bar opens below the 40EMA.

The statement I just made is easily verified, it's tradeable, it's highly statistically significant, and it's been that way for decades. It's classic trend following.

So to get down to brass tacks, in certain instruments on certain time frames there's ironclad evidence of trending even using a trivial detector for trends. Now discussing how best to find the right instruments and timeframes and how to best follow the trends thus discovered is a broad topic. But let's not pretend there are no statistically significant trending instruments out there.

Thanks for the info. Is it safe to assume that you're talking about the 40-bar EMA of closing price?

 

[Rodney King]

This is more or less the Mebane Faber "model" that's been tossed around in the press for the past two years.

On another note, the trend-tracker blog mentioned earlier is now updated thru Mar, http://bit.ly/hBxW4j

 

[The Big D]

Quote from kut2k2:

Thanks for the info. Is it safe to assume that you're talking about the 40-bar EMA of closing price?

Sure, although in practice it makes no difference which side of the weekend gap you use. For that matter you could use the Wednesday S&P pit close as your price for the week if you really wanted. Actually, you could use any price from any specific time in the week. The effect is way too strong to care about minor details like that.

Incidentally, this is far from the best system for trading the S&P on weekly bars. It's too tweaky and reverses its position way too often. But it is perfectly good for statistical purposes to prove trends are real - since there are roughly 1500 data points in the modern (post-Volcker) era and and the method uses readily available data, it allows one to disprove the efficient market hypothesis with a confidence nearing absolute certainty.

 

[The Big D]

Quote from Rodney King:

This is more or less the Mebane Faber "model" that's been tossed around in the press for the past two years.

It's WAY older than that. I believe it's mentioned as a working system in Market Wizards (or some similarly sage old tome - I don't have it handy). And the intellectual root of this line of thinking, exponential moving average crossover systems, date back to the 70's at least. SMA crossovers are older than that I think.

The interesting thing is, anyone who's anyone has known this works for about 40 years now. And it STILL works. Funny, that

 

[obamapips]

Quote from The Big D:

True. However, since markets aren't random in that sense, who cares?

Most markets I've analyzed have a counter-trend bias at short time frames, and a trend bias on longer time frames. The doesn't mean you can't trade the opposite style, but the sophistication required of your entry decision making/filter is much higher if you're trading opposite the nature of the market.

100% agreed with you, The Big D.

 

[marketsurfer]

Quote from Rodney King:

This is more or less the Mebane Faber "model" that's been tossed around in the press for the past two years.

On another note, the trend-tracker blog mentioned earlier is now updated thru Mar, http://bit.ly/hBxW4j

Whoa! March really wasn't kind to trend followers. Are all these guys using the exact same model? Wonder if they will get back to even?

 

[Gabfly1]

Quote from kut2k2:

Now I'm curious. Why should counter-trend trading be any more predictable than trend trading? If price moves randomly, both methods would be unprofitable, right?

Another good poke at the internal inconsistency of marketsurfer's argument, and one to which he has predictably not responded.

 

[marketsurfer]

Quote from Gabfly1:

Another good poke at the internal inconsistency of marketsurfer's argument, and one to which he has predictably not responded.

Quote from kut2k2:

<b>Now I'm curious. Why should counter-trend trading be any more predictable than trend trading? If price moves randomly, both methods would be unprofitable, right?

Another good poke at the internal inconsistency of marketsurfer's argument, and one to which he has predictably not responded. </b>
Thanks for catching this, gabfly, I did not read it earlier.

Without another edge than the past trend, both methods are guesses-- profits would be subject to guessing then managing the trades correctly -- being lucky and disciplined is a huge part of trading without an edge.

Both or one or the other could be profitable, as well as not profitable as the case or trader may be. In fact, they could both be profitable at the same entry depending on time frame.