Over the past decade or so, a simple trend following strategy would have steered investors to exits after the tech bubble and again after the 2008 financial depression while signaling investors to re-enter once the trends returned.
On the other hand, investors who bought and held the S&P 500 over our lost decade would have noticed that their investments are only now inching back to the highs at the turn of the millennium.
Moreover, if you implement a trend following strategy, investors should tenaciously stick to it. An investment strategy will help investors trade on logic instead of relying on fight-or-flight instincts.
“Trend followers don’t get entry or exit signals and apply some extra layer of ‘human judgment,'” Coval added. “They don’t try to be smarter than the system. ”
For more information on trend following, visit our trend following category.
Max Chen contributed to this article.