Trendfollowersdonotaimtobuythemarketrightatthebottomnorsellatthehigh.

Instead,theybuythemarketasitmovesupandsellthemarketasitmovesdown.On
theotherside,theyshortthemarketasitgoesdownandcoverthemarketasitgoes
up.

Thisway,theycatchthemeatofthemoveandwindupmakingagooddealofmoney.

Howtofollowthetrend?
Acommonmistakethatsometradersmakeistryingtocomeupwithanelaborate
methodorsystemforfollowingthetrend.Thetruthistherearenumerouswaystofind
trendsandsimplemethodsarejustasgoodascomplexones.

Whenyouthinkaboutit,theideaofatrendisinitself,quiteanabstractthingthat
dependsonthetimeframeyouarelookingat.

Indeedamarketcanquiteeasilybetrendingupwardsonamonthlychartbut
downwardsonanhourlychart.
Whatisthedefinitionofatrend?
Youcouldsaythatatrendissimplyageneraldirectionofsomething.Andpartly
becauseofthisvaguedefinition,otherfactorssuchasthemarkettimeframeandthe
diversificationoftheportfoliotakeonextrasignificance.

Themostimportantthingtherefore,istofindthereallybigtrends,thetrendslarge
enoughandfrequentenoughtomakegoodmoneytradingthem.

Ifastockisgoinghigherandhigher,nearlyeverytrendfollowingindicatorunderthesun
willindicateanupwardtrend.

Itisthereforenotnecessarilysoimportantwhichindicatoryouchoose.Theimportant
thingistofindthetrendfollowingindicatorsthatworkforyouandtosticktothem.

Sonowwehaveestablishedtheimportanceoffindingbigandreliabletrends,hereare
10differentandnewwaystofollowthetrend.

Alongwiththesemethods,Iwillscanthemarketandsoprovidethenumberofnew
signalsprovidedbyeachmethod.

Iwillsuggestthatgoodtrendsarenoteasytocomeby,sothetrendfollowingmethods
withfewersignalsshouldbemorerobustthanthemethodswithmoresignals.

10morewaystofollowthetrend
Theexamplesprovidedherewillbeforfindinguptrendsbuttheexactsameprocesscan
beusedtofinddownwardtrends.
#1.52WeekHigh/Low

Itsreasonabletoconcludethatifastockmakesanew52weekhighitsinapretty
strongupwardtrend.Andlikewise,ifitsjustmadeanew52weeklowitwillbeina
strongdownwardtrend.

Thisisthebasisofmanysuccessfultrendfollowingsystems.

However,considerthefollowingtwostocks,bothofwhichhavejustmadenew52week
highs:

Youcanseethatthefirststockhasbeengraduallytrendinghigherwhilethesecond
wasinrangeboundterritorybeforeabigmovemadeitspikethroughits52weekhigh.

Fortrendfollowers,thefirststockshouldprovidemorereliablereturnsthanthesecond
thoughatradercanneverbe100%surewhichtrendwillbethesmoothest.

ScanningthedatabaseofS&P1500stocksfortheweekof5January2015resultedin
33companiesmaking52weekhighs.

#2.MovingAverageCrossover

Anothercommontrendfollowingindicatoristhe asitshowsobjectively
MAcrossover
whenamarketisgraduallytrendinghigherorlower.

Bythisreasoning,whenafastmovingaveragesuchasthe50dayMAcrossesovera
slowmovingaveragesuchasthe200dayMA,itsreasonabletoconcludethatan
uptrendisinplace.
ThisisexemplifiedinthefollowingchartforHealthwaysInc.
$ :
HWAY

The50periodMAisinblueandthe200MAisorange.Youcanseethattheupward
trendisalreadydeveloping.

ScanningthedatabaseofS&P1500stocksfortheweekof5January2015resultedin
11stocksmakingabullish50/200MAcrossover.

Thisisntsomanyandthereweresomestocksinthere,thattothenakedeye,didnot
looklikeinanuptrendatall.Thatistheadvantageofusingthemovingaverage
crossover.

#3.UsingRSI

TheRelativeStrengthIndexisanoversold/overboughtoscillatorthatismostoftenused
asameanreversionindicator.Butinthisinstancewecanuseitasatrendfollowing
indicatortoo.
Simply,whenRSIhasreachedanextremelevelsuchas70,itisreasonableto
concludethatthemarkethasmovedupwardsaggressivelyandanewuptrendisin
place.

Andasyoucanseeforthebelowstock
$ ,theRSIcrossingover70haspreviously
ACC
beenagoodsignaltojointheupwardtrend.

Bytheway,buysignalsareshownbythegreenarrows.

ScanningthedatabaseforthefirstweekofJanuary2015forstockswithdailyRSI(14)
crossingover70resultedin10signals.
#4.4WeeksHigherClose

Anotherwaytofindastockthatistrendinghigheristosimplytolookatitsmostrecent
performance.

Ifastockhasclosedhigherforfourweeksinarowforexample,theweeklychartwill
showfourbullishcandles.Thisisanotherreasonableindicationofanuptrend.

ScanningthedatabaseofS&P1500stocksfortheweekofJanuary5th2015forstocks
with4weeksofconsecutivehigherclosesresultedin61signals.

Isuggestthatthisisquitealargenumberofsignals,indicatingthatthismethodis
potentiallyhazardousfortrendtraders.

Traderscannotwishfortheretobesomanygoodtradestotake.
#5.LinearRegression

Thereisnothingfancyaboutthelinearregressionindicator.Itissimplyanotherwayof
identifyingwhetheramarketismovingupordown.

Inthiscase,theindicatorplotstheendpointsofwholeseriesoflinearregressionlines.
Itidentifiestrendsmorequicklythanamovingaveragebutisthereforemoreproneto
whipsaws.

ScanningthedatabaseofS&P1500stocksforalinearregression50day/200day
crossovergave4signalsincludingthisonefor
$ :
BRLI

#6.MomentumIndicator

Themomentumofasecurityistheratiooftodayspricecomparedtotheprice
xnumberofperiodsago.Itcaneasilybecombinedwithvolumebutinthisinstancewe
ignorevolumeandconcludethatastockisinanuptrendifthemomentumratiohas
crossedthezeroline.

Asseenfromthechartfor
$ ,themomentumindicatorcanpickoutupwardtrends
BOBE
whenthezerolineiscrossed.

(Thegreenarrowsindicatewhenthezerolinehascrossed).

However,theindicatoralsopicksoutsomemoredubiouschoices,likethisonefor
$ :
RYAM


Scanningthedatabaseresultedin11stockscrossingthedailymomentumzeroline.

#7.GoogleTrends

Althoughtheessenceoftrendfollowingistofollowpricealone,itmaybeworth
investigatingotherfactors,forexampleearningsdata,sentimentdata,orevensearch
enginedata.Later,wemaybeabletocombinethemwithpriceindicatorstoforma
strategy.

Thedatabaseoftradingsystemsat linkstoaninterestingstrategythatis
Quantpedia
basedonsearchdatafromGoogle.Theideaisthatwhenacompanyissearchedfor
manytimes,itismorepopularandlikelytoseeitssharepriceappreciate.
Inthisexample,IvecomparedtheGooglesearchdataforPfizerInc(top)withits
shareprice(bottom):

Lookingatthisalone,thereappearstobenorealconnection.

ThenumberofGooglesearchesforPfizerInchasclearlybeentrendingdownwards
whereasthestockpricehassoared.
However,thereissomeuseinusingGoogledata,particularlyforidentifyingsector
trendsandanotherinterestingexamplewasshownwiththe .
searchtermdebt

ItsworthlookingintofurtherandIwilldothatatsomepoint.

#8.EarningsTrends

AsIsaid,trendfollowersshouldfocusonpriceandthisisparticularlytrueincommodity
andcurrencymarkets.

Instocksthough,earningstrendscanbeextremelyusefulsinceastockpricealways
convergeswithitsearningslineovertime.

Thus,astockwhoseearningsistrendinghigherwilllikelyseeitsstockpricealsotrend
higher.

YoucanclearlyseethistakingplaceinthenextchartforMcDonalds
$ .
MCD

Earningspershare,representedbytheblueline,hasmovedinlockstepwiththeshare
price,representedbythegreenline,since1996:


Chartprovidedby
Gurufocus.com

#9.VolumeandPrice

Ofcourse,anotherwaytofollowthetrendistocombineindicatorstogetherandthereis
nobettercombinationthanusingpricewithvolume.

Volumeissuchagoodindicatortousesinceithighlightshowmarketparticipantsare
behaving.

Whenastockmoveshigheronlargevolumeitsanindicationofmanytraderscoming
togethertobuythestock.

Inthisexample,Iscanforstocksthathavehit52weekhighsandwhosevolumeisalso
twiceaslargeasthe66daymovingaverage.
Scanningthedatabaseproduced6signalsincludingthisonein
$ :
MIFI

#10.CreateYourOwn

Whatyouwillfindbylookingintodifferenttrendfollowingindicatorsisthatmanyofthe
samestockswillkeeppoppingup.

Thatsbecauseeveryindicatoressentiallytriestodothesamethingfindastockthatis
movinghigher.

Youshouldfeelfreetomoveawayfromthenormalandcreateyourownconditionsfor
followingthetrend.

Bycombiningindicatorsorbyaddingfundamentalconsiderations,youshouldbeableto
findstronger,morerobusttrends.
Androbust,reliabletrendsarewhateverytraderwishesfor.