Another Way To Follow Trends
In my introduction to Trend Following, I was telling you that a way to judge a stock's trend is to simply see whether the current price is above or below its 30 day moving average.
This is a valid system but there are many other ways to follow trends too.
There is a very useful graph in the Trend Following book which shows the best moving average combinations that have given the best returns when backtested.
The best moving average combination is the 50 day and 110 day moving average combination. This combination produces an outstanding 20-22% average profit per year.
And according to this combination, Silvercorp is still in an uptrend, unlike if it is evaluated solely on a 30 day moving average.
Therefore as long as the 50 day M.A. stays above the 110 day M.A. the stock should keep rising.
As you can see by the chart above, the trend is still down for CUX. My other short candidate YRI is actually still in an uptrend if you use this combination so I might have to cover that for a tiny loss.
I still have to experiment to see which system works but if this 50-110 combination was backtested and it gave the best results it should continue to do so in the longterm.
The only thing I have to figure out is which stop loss system I should add to this 50-110 system. I certainly don't want to go through 50% volatility unless I must.
More to come in my Trend Following experiments and analysis.
Also, I can't figure out why more of you haven't entered the Gold Rush 21 DVD contest. It is completely free so please do so here. If there is something that is preventing from entering, please let me know what it is for future reference. FYI, it closes Sunday night.