if trend following is so simple why doesnt everyone do it?
Everyone has got their own system, their own way that works for them. Also everything that looks simple isn’t that simple, say you spot trend, where do you get in? How do you know the rally hasn’t exhausted? It looks simple on paper but not that simple when it comes to execution.
- Trend following isn’t simple. How many trend followers have the stomach to sit through the entire time period during which a trend system has a buy signal? My guess would be very few. Most trend followers will be weak hands that fold at the first sign of volatility.
- This is a behavioral reason. We humans have a romantic affection for complex things. For example, an index mutual fund will do better than 60% of all mutual funds at 90% lower cots, yet, people say it is too simple to be true.
Those fears are valid, in a country like India where the fundamentals and income levels are so low you can’t expect people to believe some fund manager’s IQ on the state of the economy - heck, that guy could even be some unqualified nutjob from bihari university relying on the political situation to manage his fund as do most institutional traders in India.
Simple answer - Because you have your own bias/preconception in mind.
Keep mind blank and it will be easy to follow trend, but it is easier said than done.
have some respect please.
I am not from Bihar.
Trend or mean reversion, or any strategy: most people abandon their strategies when they see draw downs. No system gives winners every time. But, people expect winning trades in every attempt.
It is the losing streaks that are the challenge. Can you stomach losing streaks, say a minus 10% loss in short term if your system gives you 21% overall returns at the end of the year? Most of us jump the ship looking to a new strategy when faced with losses.
Trend following strategies will give you plenty of whipsaws when the market doesn’t trend and enters into a range.