Over the years many commodity trading advisors, proprietary traders, and global macro hedge funds havesuccessfully applied various trend following methods to profitably trade in global futures markets.
Very littleresearch, however, has been published regarding trend following strategies applied to stocks. Is it reasonableto assume that trend following works on futures but not stocks?
We decided to put a long only trend followingstrategy to the test by running it against a comprehensive database of U.S. stocks that have been adjusted forcorporate actions1. Delisted2 companies were included to account for survivorship bias3. Realistic transactioncost estimates (slippage & commission) were applied.
Liquidity filters were used to limit hypothetical trading toonly stocks that would have been liquid enough to trade, at the time of the trade. Coverage included 24,000+securities spanning 22 years.
Does Trend Following Work on Stocks
The empirical results strongly suggest that trend following on stocks does
offer apositive mathematical expectancy4,
an e building block of an effective investing or trading system.