Trend Following

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Trend following is the canonical algorithmic trading strategy. Funds that have popularised trend following include Winton, AHL and QIM, amongst many others. Such funds typically trade futures slowly, aiming to pick up long term macroeconomic trends. Positions may be held from anything from a few months to several years.

Instrument Types

Trend following is normally done on futures. Futures are used as they are cheap to trade and offer effectively unlimited leverage.

How trend following works

The simplest trend following algorithm is the moving average crossover. It is based on the assumption that the daily distribution of returns can be modelled as a trend plus some noise:

An exponentially weighted moving average is typically used to pick the trend term.

In the following