Introduction Course Archives

Treasury Bonds: Buy and Hold or Trend Follow?

If one had to invest in buy and hold treasury bonds or trend-followed treasury bonds, it is likely that most investors would prefer the trend-followed bond investment. However, in a broader portfolio context, the analysis suggests that how one 'eats' their bond exposure is largely irrelevant and the portfolio's long-term outcome will be driven by equity market dynamics. Bonds systematically lower an equity-centric portfolio's returns, but they also lower the risk profile of the overall portfolio.

Trend Following Says Commodities…But Nothing Else!

The analysis above highlights that we are in a rare regime when commodities are the only long asset with a positive trend. The last time this happened we entered a long period of high inflation and poor real returns. Will this happen again? Who knows. But we do know that post-1973 we entered a world where, for several decades (at least up to around 2007), both bonds and commodities were an important component of a diversified portfolio. The recent past has arguably made investors complacent in their reliance on a stock/bond portfolio as an end-all-be-all solution. When history tells us that incorporating commodities into a portfolio probably makes sense from a diversification standpoint.

Time Series Momentum: Theory and Evidence

Time Series Momentum in the US Stock Market: Empirical Evidence and Theoretical Implications Valeriy Zakamulin and Javier GinerWorking paper, University of Agder and University of [...]

Daily vs. Monthly Trend-Following Rules…Plus Some DIY Tools!

Trend-following strategies are a lot like stock-picking strategies -- there are endless approaches and varying levels of complexity. In this short piece, we explore the [...]

Pitfalls When Assessing Market-Timing Strategies

Consider a market-timing strategy which supposedly predicts the direction of the stock market trend. Such a strategy generates Buy and Sell signals. A Buy signal [...]

If you had to do a trend following strategy, what would it be and why?

The topic of this blog post was inspired by Wes, who said the following: Valeriy, you have done more formal academic research on trend-following than [...]

Trend-Following with Valeriy Zakamulin: Trading in Various Financial Markets (Part 8)

In our final blog post, that finishes the trend-following series, we briefly review the results of the forward-tests of the profitability of various trend following [...]

Trend-Following with Valeriy Zakamulin: Trading the S&P 500 Index (Part 7)

The Standard and Poor's (S&P) 500 index is a value-weighted stock index based on the market capitalizations of 500 large companies in the US. This [...]

Trend-Following: Testing the Profitability of Trading Rules (Part 6)

The difficulty in testing the profitability of trend-following rules stems from the fact that the procedure of testing involves either a single- or multi-variable optimization. [...]

Trend-Following with Valeriy Zakamulin: Performance Measurement and Outperformance Tests (Part 5)

We consider an investor and a financial market that consists of only two assets: one risky asset and one safe (or risk-fee) asset. An example [...]

Trend-Following with Valeriy Zakamulin: Anatomy of Trading Rules (Part 4)

In our context, a technical trading indicator can be considered as a combination of a specific technical trading rule with a particular moving average of [...]

TREND-FOLLOWING WITH VALERIY ZAKAMULIN: TECHNICAL TRADING RULES (PART 3)

A trend following strategy is based on switching between a financial asset and cash depending on whether the asset prices trend upward or downward. Specifically, [...]

Trend-Following with Valeriy Zakamulin: Types of Moving Averages (Part 2)

In this post we aim to give an overview of some specific types of moving averages. Specifically, we cover "ordinary" moving averages and mention some examples of exotic moving averages.

Trend-Following with Valeriy Zakamulin: Moving Average Basics (Part 1)

One of the basic principles of technical analysis is that ``prices move in trends". Traders firmly believe that these trends can be identified in a timely manner and used to generate profits and limit losses. Consequently, trend following is the most widespread market timing strategy; it tries to jump on a trend and ride it. Specifically, when stock prices are trending upward (downward), it's time to buy (sell) the stock. Even though trend following is very simple in concept, its practical realization is complicated. One of the major difficulties is that stock prices fluctuate wildly due to imbalances between supply and demand and due to constant arrival of new information about company fundamentals. These up-and-down fluctuations make it hard to identify turning points in a trend. Moving averages are used to ``smooth" the stock price in order to highlight the underlying trend.

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