Trendfollowers

Trendfollowers are traders or investors who base decisions on the direction of price movements. They aim to profit from sustained trends by taking long positions in rising markets and short or exiting in falling ones. In practice, many trendfollowing strategies are systematic and rule-based, implemented with algorithmic models.

The approach is typically diversified across asset classes, including futures, commodities, currencies, bonds, and equities. Positions are generally sized according to predefined risk rules, and leverage is commonly used but kept within strict limits to control drawdowns. The emphasis is on capturing big moves rather than predicting turning points.

Common methods include time-series momentum (prices trending over time), breakout or breakout-and-trend rules, and moving-average or Donchian-channel approaches. Traders may hold positions for days to months, with exit rules designed to cut losses quickly while letting winning positions run.

Historically, trend following has roots in early systematic trading and became widely known through the Turtle Traders experiment run by Richard Dennis and William Eckhardt in the 1980s. The strategy has been credited with strong performance during major market moves and financial crises, though it can incur long drawdowns in range-bound periods.

Critics note that trendfollowing can underperform during sideways markets and requires significant capital, transaction costs, and access to diverse, liquid markets. As with any investment approach, results vary by regime and manager, and past performance does not guarantee future results.