Trend Following Strategies
Popular trending strategy trading rules you may have heard:
- “Buy high and sell higher”
- “The trend is your friend”
- “Go with the flow”
- “Don’t fight the market”
- “Never average down”
- “Never meet a margin call”
- “If you must lighten up, liquidate your worst position”
- “TOPS-COLA – Take out profit slowly, cut off losses at once”
Trending strategies, momentum trading, attempt to take advantage of a trend in progress. A simple trending portfolio management strategy might have these rules:
- Purchase 10 stocks with largest percent gain over last 5 days.
- Keep all account equity in stocks
- Re-screen for largest gain weekly
- Rebalance weekly, selling stocks that fall out of big gain 10, buying stocks that are new to big gain 10, and bringing all 10 positions to 10% of account equity.
Trending strategies win when trends are long. The trend has to continue on past its recognition, for gains to be realized.