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- Trend following remains effective in stock markets, showing long-term gains despite market crashes through systematic trading strategies since 1950.
- The principles of trend following not only apply to stocks but also extend to real estate and cryptocurrency, enhancing decision-making in finance and life.
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Effectiveness of Trend Following in Stocks
Trend following remains a viable strategy in the stock market, as evidenced by an extensive analysis dating back to 1950, which included every liquid U.S. stock to avoid survivorship bias. The research set specific criteria for stock selection, requiring a minimum closing price of $10 and an average daily volume of at least a million dollars over the previous 42 days, ensuring that only liquid stocks were considered. The entry strategy involved buying stocks at market open after they reached a new all-time high, while a trailing stop loss helped secure profits and minimize losses in potentially volatile situations. Notably, even during significant market crashes, the methodology allowed for profitability and showcased the potential for long-term gains through systematic trading.
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