Trend Following by its very nature is a system. There is no point in adopting a trend following strategy and then, changing the system you are using when you feel a hiccup. Trend following is following, it is not a way of knowing what the market will do or a way of prediction. If it were, there would be no market as everyone would invest in the same thing and there would be no profit in trading.
Trend following is a way of analyzing risk based on the trend you are following. It is a way of determining what market or stock you should be investing in based on the current trend. Trend following is not a fashionable way of trading for two reasons. The first being that trend following is based on easy to learn systems. It doesn’t have to be Harvard graduate run hedge funds or super computer required difficulty. It is a system that is simple, and that bothers many people. The other issue is it is non-discretionary , meaning you follow the rules and don’t include your “gut” feelings. I know you want to feel smart and right, but trend following gives you neither, trend following stocks just makes you money.
One of the most important things in making a trend following system work, is knowing how much you should trade for the trend that you are following. You also need to trade in the context of the market at the time. If the market is unstable and there are large shifts in prices, then it might seem to be a good time to make a good profit, but it is just as easy to lose a lot of money and it is generally best to make smaller trades in this type of market. To make trend following work for you, you need to decide when it is best for you to start to trade, how much money you should risk, the best way to sell quickly if the prices drop and when to sell if the prices rise so that you make your profit before the market starts to turn.
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