Trend Following Strategies

We had a second trend change for this year for all 3 major indexes (NASDAQ, S&P500 and Dow Jones) during the month of June. Now all market indexes are in a downtrend and we recommended our members to buy inverse ETFs.

As for the returns, our second trade for 2008 added almost 10% to our portfolios following the NASDAQ and S&P500 indexes and was slightly negative for the conservative portfolio. Here are the year to date returns (closed trades only) for all 3 portfolios:

Aggressive portfolio: +37.02

Moderate Portfolio: +23.67

Conservative Portfolio: +10.22

All closed trades are now available on this page.

Trend Following: How Great Traders Make Millions in Up or Down Markets

by Michael W. Covel

• Reveals the trading strategy that made John W. Henry rich enough to buy the Boston Red Sox.
• Contains 50+ pages of easy-to-understand charts, actual results from top Trend Followers.
• Shows how to apply trend following in your portfolio–one step at a time, in plain English.

For more than 30 years, one trading strategy has consistently delivered extraordinary profits in bull and bear markets alike: Trend Following. Just ask the billionaire traders who rely on it…traders like John W. Henry, whose trading profits bought the Boston Red Sox!

In Trend Following, New Expanded Edition, you’ll meet them…and discover exactly how to use trend following in your own portfolio. This expanded edition includes more than 50 pages of easy-to-understand performance charts. It is the book multi-billion-dollar hedge funds have

made mandatory reading for their staffs.

Michael Covel goes right to the source, presenting powerful insights straight from the world’s top trend followers, and debunking Wall Street myths and misinformation from well-known pros who ought to know better. You’ll learn how to manage risk, employ market discipline, and, when the moment is right, swing for the home run.

Book price: $17.99 (sold on Amazon for $12).

Trend following traders will base their decisions off of market analysis. The biggest focus will be placed upon general price trends viewed. Speculation and predictions will be left to other investment systems. Trend followers just need to watch the trading prices and keep an eye on the market averages.

The actual methods for trend following rely on getting good trade signals. Everything else tends to fall into place once you decide on where you’ll invest the money. Once a new trend has been spotted you just have to evaluate the risk. If the market is volatile you should choose to invest a smaller amount of money in order to save your capital for possible trends in more stable markets. Limiting investments in risky markets will also serve as an effective way to minimize any losses that could arise from misreading a trend.

If you want to invest through the trend following method, you would have some system established to get your trade signals. These signals can come from your own analysis of the stock market or they may come from a paid service like the one we offer on this site. Regardless of the source, you would read your trade signal and then analyze your current available capital. After evaluating the risk you have to make a decision about how much you wish to invest. Then you just make the appropriate trade and watch for the trend to play out. If your trade signals are valid, then the overall trend should play out in your favor over time to provide a healthy return on your investment.

Trend following is a good way for the average investor to play the market without taking a significant risk. It is simply a matter of taking the time to understand the way trends will go.

Trend following allows smart investors to play the market in both good and bad times. The principles are also simple enough to grasp relatively quickly, especially when compared to some of the more complex systems available. Following market trends adheres to a few basic ideas that all lie on the basis of the market. The trend trader essentially just has to get their signals and decide on how much they want to invest.

Normal stock investing usually relies on trying to outsmart the market. The rich investor is the one who predicts the next big innovation or gets in before the big surge. Trend following takes a different approach to the market. Trend followers merely try and see the next trend and jump onboard in time to make a profit. The big difference lies in the fact that they will wait until the trend has already broken to get out. There is considerably less risk involved since the trend is already in play on the market. There isn’t any guesswork involved; one must only understand the current price signals or follow a good trading system like the one we are offering here.

Our 3 portfolios posted great returns for the first 3 months of 2008. 27.33% for the portfolio tracking the Nasdaq index, 15.95% for the one tracking the S&P500 index and 10.79% for our conservative portfolio (tracking the Dow Jones index). Those returns were achieved with only one trade for each portfolio.

The reference indexes are down about 15% for the same period.