What is trend following? Trend following is a trading style that identifies, and confirms, the directional movement of price, then enters in the direction of the trend until the trend reverses. The system seeks out trends and keeps capital positioned in that direction. Trend following can be simply described as going long markets that are rising in price, and going short markets that are falling in price. Or, going long markets that are rising in price, and exiting markets that are falling in price (remaining in cash until those markets are rising again).
Systematic is having, showing, or involving a system, method, or plan.
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So, systematic trend following is having a plan and system for identifying and confirming the directional movement of price, then keeps capital positioned in that direction by buying and selling.
Sometimes the term “systematic trend following” is used to mean a systematic trading strategy. When systematic trading strategy is used, it often means “automated” trading strategy. Automation is “the technique, method, or system of operating or controlling a process by highly automatic means, as by electronic devices, reducing human intervention to a minimum.” Systematic isn’t necessarily so automated.
Quotes about Trend Following:
“Don’t fight the Tape”
“It may surprise many to know that in my method of trading, when I see by my records that an upward trend is in progress, I become a buyer as soon as a stock makes a new high on its movement, after having had a normal reaction. The same applies whenever I take the short side. Why? Because I am following the trend at the time. My records signal me to go ahead!”
Let’s break down the term Trend Following into its components. The first part is “trend”. Every trader needs a trend to make money. If you think about it, no matter what the technique, if there is not a trend after you buy, then you will not be able to sell at higher prices…”Following” is the next part of the term. We use this word because trend followers always wait for the trend to shift first, then “follow” it.
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key words: trend following, systematic trend following, directional trend following