Does Trend Following Work on Stocks?

Some recent conversations prompted me to revisit some of the return capture and loss avoidance conclusions from the 2005 paper, Does Trend Following Work on Stocks?

The evidence suggests that trend following can work well on stocks. Buying stocks at new all time highs and exiting them after they’ve fallen below a 10 ATR trailing stop would have yielded a significant return on average. The evidence also suggests that such trading would not have resulted in significant tax burdens relative to buy & hold investing. Test results show the potential for diversification exceeding that of the typical mutual fund. The trade results distribution shows significant right skew, indicating that large outlier trades would have been concentrated among winning trades rather than losing trades. At this stage, we are comfortable answering the question “Does trend following work on stocks?” The evidence strongly suggests that it does.

Does Trend Following Work on Stocks?