Trend Following: The Oldest Strategy That Just Keeps Winning/ Part 1
Breaking it down: A series on Trend Following. Issue one... Links, books, white papers and more!
For centuries, traders have tried to predict markets—chasing news, studying fundamentals, and searching for a perfect formula to outthink the crowd. Meanwhile, the only strategy that actually worked was the simplest one: Follow the trend.
Nobody wanted to believe it. Trend following felt too passive, too reactive. Human nature prefers action, control, and the illusion of certainty. But markets don’t reward ego. They reward discipline.
The Unspoken Truth of Early Trading
Trend following wasn’t born in a lab. It wasn’t a theory crafted by economists. It was a survival mechanism.
In the 1900s, the most powerful traders—Gould, Patten, Cutten, Livermore—moved markets through insider knowledge, manipulation, and sheer size.
The only way smaller traders survived was by recognizing the trend and riding the moves made by the big players.
This wasn’t some hidden secret—it was happening in broad daylight. The best traders knew: When the big money moves, you move with it.
David Ricardo (1818): “Cut short your losses; let your profits run.”
Arthur Cutten (1900s): “My success comes from hanging on while my profits mounted.”
Jesse Livermore (1920s): “The big money is in the main movements, not the fluctuations.”
They weren’t guessing. They weren’t predicting. They were following.
The Birth of Systematic Trend Following
For most of history, traders applied trend following intuitively. But in the early 20th century, the strategy became systematic.
🔹 Dow Theory (1900s): Identified market trends based on price action.
🔹 Richard Wyckoff (1920s): Recognized how “smart money” moved first.
🔹 William Dunnigan (1950s): Created one of the first formalized trend following systems.
🔹 Richard Donchian (1957): Popularized moving averages and breakout trading.
By the 1950s, trend following wasn’t just a loose idea—it was a rules based trading system. Buy breakouts, stay in until the trend ends, cut losers fast.
It worked in commodities. It worked in currencies. It worked in stocks. And it still works today
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Why Trend Following Survives
Markets change, narratives shift, and investors keep making the same emotional mistakes. But trends persist.
That’s why some of the biggest hedge funds today still rely on trend following models.
They don’t need to predict the news, time interest rate cycles, or outsmart the Fed. They just follow price.
Because price already knows.
That’s the secret. That’s the whole game.
Find the trend. Follow it. Manage risk. Ignore the noise.
Do that, and you’ll always have an edge—no matter what century you’re trading in.
📚 Essential Books on Trend Following
🔹 Trend Following – Michael Covel
The definitive guide to systematic trend following, featuring case studies from top traders and hedge funds.
🔹 The Complete TurtleTrader – Michael Covel
The legendary story of how Richard Dennis trained a group of traders (the Turtles) to follow trends profitably.
🔹 Following the Trend – Andreas Clenow
A deep dive into how professional funds implement trend-following strategies.
🔹 Stocks on the Move – Andreas Clenow
How trend following applies to equities, with a quantitative framework for implementation.
🔹 Trend Following with Managed Futures – Alex Greyserman & Kathryn Kaminski
A more academic, data-driven analysis of trend following across asset classes.
🔹 Way of the Turtle – Curtis Faith
A first-hand account from one of Richard Dennis’ original Turtle Traders, with insights into system design.
🔹 Quantitative Trading Systems – Howard Bandy
A systematic approach to designing and testing rule-based trend-following strategies.
🔹 Technical Analysis of Stock Trends – Robert D. Edwards & John Magee
One of the earliest books on trend trading, heavily influenced by Dow Theory.
🔹 Reminiscences of a Stock Operator – Edwin Lefèvre
A fictionalized biography of Jesse Livermore, showcasing his trend-following mindset.
🔹 The Alchemy of Finance – George Soros
While not strictly a trend-following book, it explores reflexivity and how trends persist in financial markets.
📄 Academic Research & White Papers
📄 "Does Trend Following Work on Stocks?" – Andreas Clenow (2013)
Examines the effectiveness of trend following in equity markets.
📄 "A Century of Evidence on Trend Following Investing" – Hurst, Ooi, Pedersen (2017)
A comprehensive study showing that trend following has worked across multiple asset classes for over 100 years.
📄 "Time Series Momentum" – Moskowitz, Ooi, Pedersen (2012)
Research on momentum-based trend following across global markets.
📄 "The Risk Premia Embedded in Trend Following" – Kathryn Kaminski (2011)
A deeper look into why trend following strategies generate returns over time.
📄 "Commodity Trading Advisors: Risk, Performance, and Persistence" – Fung & Hsieh (1997)
Analyzes the performance and risk factors behind CTA trend-following strategies.
🌐 Bonus: Websites & Blogs
📌 Michael Covel’s Trend Following Blog
📌 Andreas Clenow’s Blog
📌 Meb Faber Research
📌 Quantpedia – Trading Strategy Database
Against All Odds Research
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