Why Is Trend Following A Good Trading Strategy?

The most popular stock strategy is trend following.

It is based on momentum and direction. The trader earns a fortune when there is a trend. When a trader follows a trend, he should be aware that he is minimizing losses and maximizing profits. There are usually break even days at other times.

Trend following is an excellent trading technique since it is straightforward, takes little time to implement, and has a lengthy track record of success.

The return on investment is really high, and you may run this type of trading system while still working a day job – or when you want to vacation and spend more time with your family and friends!

The trend following technique of trading has a tendency to produce a small number of large winners. You can meet people who have made millions by tracking trends, such as Ross Cameron, Ashish Chugh, and Sasha Evdakov. Learn from their achievements and errors, whether you’re a beginner trader or a seasoned veteran.

Look for equities in trends that may move 20 to 30 percent in a day, according to successful trend follower ‘Ross Cameron.’

Trend tracking is more of a fact than a prediction. It’s a trading approach that’s always working to build a portfolio that’s waterproof. Capture the lion’s share of a trend. Recognize the pattern. Compare trend trading strategies and profit from market fluctuations.

When to purchase or sell an asset is determined by trend following. It states that you should purchase an asset when its price trend moves higher and sell it when the pattern moves downward, with the expectation that the trend will continue in the same way.

One of the intriguing issues that comes up while teaching trend following is “Why does trend following stocks truly work?” “, closely followed by “Why is there money left on the table if this strategy routinely earns money, can be taught, and isn’t rocket science?” ”

These are excellent questions, and the following of this article will address a few main factors why trend following stocks work and should continue to develop in the future. Following that, we’ll look at some of the most successful trend-following success stories from the present era.

It’s plain, yet not easy

A basic trading approach is trend tracking stocks. There aren’t many rules in a good trend following system, and they might be extremely basic. This implies that you don’t need to be a rocket scientist to develop your own trend-following trading strategy. You’d think that because it’s so simple and profitable, everyone would do it and the profits would diminish.

Managing your emotions

Systematic trading, such as trend following stocks, eliminates human emotion from all aspects of your trade. It simply allows a systematic trader to recognize and capitalize on a price movement. The secret to trading gains is to remove personal emotion from market judgments.

We understand trends exist because they can be seen in almost every chart. So, when our trend tracking system identifies one and enters it, we profit from both changes in fundamental circumstances, changes in investor mood, and changes due to corporate management influence, as detailed below.

When a trend reverses, the trend tracking method removes you from the market without emotion, allowing you to benefit. Because they expect prices to return to prior highs, emotional unsystematic investors and buy-and-hold investors lose money. The trend-follower has already made their money!

Mutual Funds Have to Maintain Their Investments

Mutual funds are unable to follow trends since they must be fully invested. They usually have a mandate (such as a certain sector) and must maintain a portfolio that is close to the appropriate index; otherwise, they run the danger of underperforming the index and their peers if they make a mistake.

Since they can leave stocks that are heading in the wrong way and retain only stocks that are moving in the correct direction, trend following systems have a huge advantage over mutual funds. This is something that money can’t do. You’ll also never see a mutual fund go completely cash since it’s illegal. If, on the other hand, you are a trend follower and there are no trends, you just keep cash!

Flexibility & Broadness

You can cover considerably more stocks than a mutual fund by trend tracking equities, and you don’t have to hire an army of analysts. I can uncover much more trend chances than an Australian mutual fund could ever find if I check all of the equities in Australia, Hong Kong, and the United States for trends. Anyone can purchase anything that meets my requirements, but a fund can only purchase assets that meet its mission.

Even if you just trade Australia’s fully paid ordinary equities, there are over 1900 different stocks to choose from. You have hundreds of possible trading prospects if you add other foreign stock markets that may be traded using your Interactive Brokers trading account, here will be a stock trend someplace most of the time!

Fundamentals are also moving in the right direction

Frequently, the fundamental driver of a trend is itself trending, so the stock continues to trend as the fundamental driver improves. This means that if you use trend following stocks as a strategy, you will continue to profit as the fundamentals improve.

The most apparent example is interest rates, which tend to go in the same direction for a long period once they begin to move in that way.

Success Stories that Follow the Trend

Over the years, trend following has proven to be the best system, even in a pandemic-affected market (COVID Panic 2020), the Tech Boom (1990s), the Tech Bubble Burst (2000s), the Global Financial Crisis (2008), and the bull market from 2009 to 2020.


Now, where do I go from here?

As you can see, there are a number of reasons why trend following stocks have worked in the past, and there is enough evidence to suggest that it will work in the future. If you’ve had enough of buy and hold and mutual fund investing, it might be time to learn how to benefit through your own stock trend following system.

Investing in automated stock trading systems through Monster Trading System, a professional firm that provides auto trading systems, is the ideal method to learn how to accomplish this and have complete confidence in your trend trading technique.

You may also drop us a message now if you want One-on-One Trading Coaching.