In a previous post, we demonstrated the mean-reverting and trending properties of SP500. We subsequently developed a trading system based on the mean-reverting behavior of the index. In this installment, we will develop a trend-following trading strategy.

Trend following or trend trading is a trading strategy according to which one should buy an asset when its price trend goes up, and sell when its trend goes down, expecting price movements to continue.

There are a number of different techniques, calculations and time-frames that may be used to determine the general direction of the market to generate a trade signal (forex…

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