Does trend following have an edge?

Discussion in 'Technical Analysis' started by Visaria, Sep 7, 2010.

  1. Visaria

    Visaria

    If so, can you please tell me what it is?

    N.B. I'm not saying that you need an edge necessarily to make money...
     
  2. It's easier to trade with the trend, than predict it's reversal point.

    IOW, in any given leg - up or down - the period over which that leg occurs is always longer, than the point at which it reverses.

    Therefore, statistically speaking, it's more profitable to trade with the trend, rather than against it.

    Buy the dips. Sell the pullbacks.
     
  3. Visaria

    Visaria

    So you're saying that there is a statistical edge?
     
  4. nLepwa

    nLepwa

    Most markets have a tendency to trend more than normal.

    So yes, there is a (small) edge in trend-following.
    However there's a bigger edge in the bullish market bias in the long run.

    Ninna
     

  5. Based on what ?
     
  6. Visaria

    Visaria

    I don't understand this statement, can you clarify pls?
     
  7. Texasdj

    Texasdj

    No edge whatsoever, other than any edge associated with buy/sell and hope.

    If you flip a coin 10 times and get 10 heads are you in a heads trend?
     
  8. Visaria

    Visaria

    Yes, but only in a historical sense. There is no predictive power as to whether the trend of heads will continue (assuming a fair coin). Past outcomes do not influence future ones.

    This is evidently not the same in a market where the decisions of previous buyers /sellers, as expressed by the price, have an influence on the decisions of future buyers/sellers.

    Hmmm... have i answered my own question then? :cool:

    Appreciate further discussion.
     
  9. nLepwa

    nLepwa

  10. nLepwa

    nLepwa

    Test it.

    Most markets have a tendency to trend more than coin flips.
    Test it and you will see.

    Ninna
     
    #10     Sep 7, 2010