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What is easy?

a)      Swimming with the sea wave or against it?

b)      Flying kites with the wind or against it?

 

It is always beneficial to be with the Greater Force.

In trading the greater force is the ‘Market’.

 

It pays off to be with the Market and going against it will make you pay. This art of being with the Greater Force – The Market by just Following the Market (Price Action) is called Trend Following.

 

What is Trend Following?

Trend Following is nothing but Following the Trend of the market to be with the market than go against it. Trend Followers believe that it is difficult (or impossible) to predict the Market, what is simple (and profitable) is to just Follow the market.

What are the Indicators used in Trend Following?

Only Price is sufficient.
 

Why only Price?

At any given point of time all information available to market participants is factored in the price. Also there may be some information which may not be available to the public domain but this sensitive information gets factored in the price due to insider trading.

There are numerous examples where before an event takes place market moves in anticipation of the outcome of an event and gets it right.

As everything gets factored in price, all news and other analysis can be safely ignored.

Is it 100% accurate?

No. It is not meant to be accurate. It is meant to make profits.

Infact most of the times Accuracy and Profitability will have a trade off.

What if there is a Gap-up or Gap- Down Move?

 In most cases Gap openings would be favorable to Trend Followers.

Prior to the general elections results of 2004, 2009 and 2014 the market had already made a big move (2004-down, 2009-up, 2014-up) and this move continued post the announcement of the results. So Trend traders would have made a fortune in all the 3 cases.

Having said so, the risk of Gap openings can be reduced substantially by using options.

Is it a Guaranteed Profit Strategy?

No. There is inherent risk of the Market. But in the longer run with proper systems the risk can be reduced to almost zero. This makes Financial Learning necessary.

 

What is the Biggest Risk to Trend Following?

The Trader himself.  If the trader is looking for Fast money or lacks discipline to follow his system or has not created a system in the first place then the trader is sure to fail.

Can I trade only in Cash Segment and Follow Trends?

Trend Following is about Following the trends which can be downtrends as well. One cannot short the Markets with Cash Market. So using Derivatives- Futures and /or Options is must.

Is Derivative Trading Risky?

All great trend following traders use leverage. It is a tool to be used correctly which again brings us to Financial Learning.

Does one need to sit in front of the screen always to trade via Trend Following?

Absolutely not. One needs to decide his own approach to trend trading. One can give it as less as 30 mins a week to a full time activity. Surprisingly lesser the time one commits better is the result.

Is this the Art of Trend Following Easy to Learn?

The beauty of Trend Following lies in its simplicity. Anyone with the knowledge of basic mathematics can learn this easily.

What is the Best way to profit from Trend Following?

Diversification. If the Stock Market is Trendless then there may be a trend is Commodities or in the Currency Segment.

 

Trend Following in India

Trend Following has its history going back to more than 100 years. Trend Following in India is not that widespread mainly due to relatively new Derivatives market.