Trend following Concepts -Prashanth -Mythri Stocks & Shares Pvt. Ltd.,

Definition of Trend Trend following is about Buying High and Selling Higher Traditional Concept is to Buy Low & Sell Lower?

Infosys – Bull Trend

SAIL – Bear Trend

Who determines the Trend Institutions? FII’s? Operators? HNI’s / Strong Hands?

Consider the following events NDA Govt Fall in 2004 UPA Winning the Election in 2009 September 2001 Attack on WTC Satyam Software before Raju’s letter Do Events / news Impact Trends

Market moves during Major Events Fall of BJP led NDA Govt in 2004

Market moves during Major Events Winning the Election by UPA in 2009

Market moves during Major Events Attack on USA – World Trade Centre

Market moves during Major Events Satyam stock before Raju’s letter

Trend Following Philosophy Trend trading is reactive by nature. It does not forecast or predict markets or price levels. Prediction is impossible! Trend trading demands self-discipline to follow precise rules (no guessing or wild emotions).

Some US Market Examples

and more….

In Commodities too

and recent Silver Rally

Identifying a TREND 1.Moving Averages 2.MACD 3.Cross overs 4.Breakouts

Moving Averages Moving averages smooth the price data to form a trend following indicator. They do not predict price direction, but rather define the current direction with a lag

200 day Moving Average in Action

So where in a trend do trend followers earn their profits? They capture the meat, or middle, of a trend. They never get in at the bottom, and they don’t get out at the top. Capture the Middle of the Trend

Examples using 200 EMA

MACD MACD = Moving average Convergence Divergence

1. Crossovers - As shown in the chart above, when the MACD falls below the signal line, it is a bearish signal, which indicates that it may be time to sell. Conversely, when the MACD rises above the signal line, the indicator gives a bullish signal, which suggests that the price of the asset is likely to experience upward momentum. Many traders wait for a confirmed cross above the signal line before entering into a position to avoid getting getting "faked out" or entering into a position too early, as shown by the first arrow. 2. Divergence - When the security price diverges from the MACD. It signals the end of the current trend. 3. Dramatic rise - When the MACD rises dramatically - that is, the shorter moving average pulls away from the longer-term moving average - it is a signal that the security is overbought and will soon return to normal levels. Traders also watch for a move above or below the zero line because this signals the position of the short-term average relative to the long-term average. When the MACD is above zero, the short-term average is above the long-term average, which signals upward momentum. The opposite is true when the MACD is below zero. As you can see from the chart above, the zero line often acts as an area of support and resistance for the indicator. Trading MACD

Moving Average Crossover A crossover occurs when a faster Moving Average (i.e. a shorter period Moving Average) crosses either above a slower Moving Average (i.e. a longer period Moving Average) which is considered a bullish crossover or below which is considered a bearish crossover.

Trading a MA Crossover using 50 * 200 (Golden Cross)

Moving Average definition The MA is a follower not a leader Good MA is sensitive enough to generate early signal but insensitive enough to avoid “ noise” Two popular combination- 5 and 25 Simple MA = P 1 +P P n N

Breakouts Breakouts can happen in various ways 1.Breakout from a Range 2.Breakout from a Pattern 3.Making a new Monthly High 4.Making a new Yearly High

Breakout from a Range

Breakout from a Pattern

Breakout from a High

Trend Following Hedge Funds 1.Dunn Capital 2.Abraham Trading 3.Altis Partners and hundreds more..

Most Important question you need to ask What is the direction of overall market? Nothing else is needed

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