Trendfollowing Trading – Few Common Trading Mistakes

Trendfollowing Trading  – Few Common Trading Mistakes

We have been doing trendfollowing & wish to share few Mistake  / Learning by novice investor or common mistake

But before going into Trendfollowing , one must understand the concept

What is trendfollowing?

Trend Following” or “Be on The Right Side” is a trading system based on the principal of price analysis. Trend Following tries to take advantage of long, medium or short-term moves of the market. Smart trader takes advantage of these market trends by observing the current direction & using this to decide whether to buy or sell.

The objective of Trend Following is to produce absolute returns irrespective of bullish or bearish market condition. The success of trading system works on following principles –

  • Strict Money & Risk Management
  • Riding the Trend & “No Prediction”
  • Emotionless Mechanical Execution
  • Discipline & Consistency to follow the System

Read the concept

 

Mistake & learning

 

  • Diversification is key & diversification in non-correlated asset classWordwide, all of the trend following product is well diversified across asset class asset class/ geography and non-corroborated asset class.. For us in India , it was only equity (nifty/banknifty).. The diversification (with non correlated asset class like equity and commodity) is the key.

Though most of the trend follower even diversify the same across country exposure which is not possible for us due to Indian Market Regulation

  • World  wide all trend following best works in
    1. Best is Interest Rate Future ( non available in india)
    2. Second best is commodity ( Specially with Crude/ metal and agri). Commodity wise best is Agri ( as its local demand /suppy), then metal  and evergy and last is precious metal
    3. Third best is Equity
    4. Fourth  & Least is in  Currency
  • Long term model & Less trade – One should focused on short term model where as well known trend follower prefer long term model….Less trade , less brokerage & less mistake
  • Low leverage – Most of the trend follower takes Leverage of 2 times only.
  • Only monthly directional trade —Mostly Trendfollower takes only one side trade & they go with direction of trade. I mean if monthly chart is on buy mode & then they taken only buy and ignore sell trade or vis-a-vis
  • Trend Following is not retail product. The drawdown could be as high as 30 – 40% of capital depending on a) leverage b) asset class and 3) correlation& composition of asset classs.
  • The trendfollowing is drawdown sometimes 2-3 years..

 

This article is educational purpose only & not commercial. Anybody wish to know the actual model & more understanding may mail me at bonpriya@gmail.com

 

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Trendfollowing Trading – Few Common Trading Mistakes

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