Trend Following

"Trend following works by focusing on price and price alone." Price is truth.

"Trend following works by focusing on price and price alone." Price is truth. Trend followers ignore fundamentals, news, and predictions. They simply react to price movements, entering when a trend begins and exiting when it ends. This allows them to profit from major price moves in any market and any direction. Trend following systems use rules to determine entry and exit points based on breakouts from trading ranges, moving averages, or other technical indicators. The goal is to ride trends for maximum profit while using stops to limit losses on losing trades. Key aspects of trend following include: Following the trend - "the trend is your friend" Cutting losses quickly Letting profits run Trading multiple markets Having a long-term perspective

"Money management is the true survival key." Limit risk per trade. Top trend followers risk only a small percentage (often 1-2%) of capital on any single trade. This allows them to withstand strings of losses while waiting for big winning trades. Position sizing is adjusted based on volatility and account equity. As accounts grow, position sizes increase proportionally to maintain consistent risk levels. Risk management techniques include: Using stop losses on every trade Scaling into positions as trends develop Adjusting position sizes based on volatility Maintaining overall portfolio risk targets Compound returns by reinvesting profits

"Win or lose, everybody gets what they want out of the market. Some people seem to like to lose, so they win by losing money." Markets are not efficient. Contrary to academic theories, markets are driven by human emotions like fear and greed rather than rational analysis. This creates persistent trends as investors herd into and out of positions. Trend followers exploit these behavioral biases by riding trends to their conclusion rather than trying to predict tops and bottoms. Key psychological factors in markets: Herding behavior and crowd psychology Overreaction to news and events Cognitive biases like loss aversion Tendency to hold losers and sell winners too early Cycles of fear and greed

"To freshen a room, open a window. Works for minds, too, and for hearts." Trade multiple markets. Top trend followers trade dozens or even hundreds of global markets across stocks, bonds, currencies, and commodities. This diversification allows them to profit from trends wherever they occur while reducing overall portfolio volatility. Correlations between markets tend to break down during crises, providing opportunities for trend followers. Benefits of diversification include: Reduced portfolio volatility More trading opportunities Ability to profit in any economic environment Protection against single-market risks Improved risk-adjusted returns