The trend is your friend. While not the most exciting way to play the markets, using a trend-following strategy can help investors build wealth consistently and avoid big losses.
For example, some of the most successful long-term investors have ridden market trends.
It’s all about knowing which way the wind is blowing in markets, and ETFs are attractive tools to implement trend-following strategies.
Critics of trend following have downplayed the strategy, suggesting that the winners are “lucky monkeys,” writes Michael Covel for Trader Planet.
However, trend followers have been able to outpace market average through tedious and persistent monitoring over long periods – “there’s no romance in trend following,” some have said.
“You don’t spot trends. You don’t find trends,” Covel wrote. “You react to market movements, and hopefully at the end of a big move, a big trend, you will have made great money from that big trend. ”
For instance, here we look at the 200-day exponential moving averages. If an ETF crosses over, it is a buy signal, and if it dips below, it is time to sell. [An ETF Trend-Following Plan for All Seasons]