TREND FOLLOWING

TRADING ON SHORT TERM TREND

Trend analysis is the basis for many successful trading programs. Whether these programs are trend following, taking positions in the direction of the trend, or mean reverting, taking positions contrary to price moment, identification of the trend is an essential component.

Trend system works because “Prices are not normally distributed but have a fat tail. The fat tail means that there are an unusually large number of directional price moves that are longer than would be expected if prices were randomly distributed.” (Perry J. Kaufman. New Trading Systems and Methods).

The fat tail is a statistical phenomenon caused by a combination of market fundamentals and human behaviors. The net effect is that prices persist in movement in one direction much longer than can be explained by random distribution. Based upon this theory, a “naive” high frequency strategy can be created – capture the short term trend in few minutes bar.

TREND FOLLOWING IS MORE OF A DISCIPLINE

Diversified Futures Trading Systems give an investor the ability to take advantage of large, medium or even micro movement in the markets. These systems can monitor many different futures in many different sectors for movements and instantaneously put you in the position to take advantage of those moves. The strategy that we use to do this is called a trend following.

Trend following trading systems, very simply, attempt to identify established trends and ride them as long as possible. Trend following is not an attempt to predict market behavior, it is more of a discipline. Trend following software usually initiates a long position on strength and gets short on weakness.

Each trend following system is obviously slightly different, but they have the same goal: To profit from the trends and moves that occur regularly in a wide array of markets. Our algorithmic system development team evaluates the entry, and more importantly, the exit strategy of each system we test. The entry is the easy part, but identifying when a trend is officially over can be very difficult.

We make sure that a trading system is not optimized to look good on just a few markets or a certain time frame. Responsible, robust exit strategies are what separate the long-lasting, viable trend following systems from the hundreds of systems that have experienced catastrophic failure.

BALANCE BETWEEN FREQUENCY AND COSTS

One of the great benefits of trend following trading systems is no need to predict markets. Usually trend following systems trade as little as once or twice a year in any given market. System developers claim that this reduces trading costs in two ways. First, fewer trades result in fewer commissions and secondly, fewer trades generate fewer opportunities for slippage.

We believe that the trick is to find balance between trading frequency and trading costs to optimize trading results and minimize drawdown. Our automated trading model TREC represents good working example of such balance.

We recommend trading a large, diversified basket of markets with trend following systems to increase the likelihood of being in one of those moves. Including Currencies, indexes, metals, energies, and agricultural products increases the likelihood that you too can experience the thrill of TREC performance.

CONTACT US

Contact our sales department by leaving us a message or call today at +370-698-80738 for more information on our trend following model TREC.

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