Does Trend Following give a trader and EDGE?
This is a question that seems to have been a topic of conversation among traders since ‘forever’. Due to how most technical indicators are calculated, this is not something that can be proven using traditional technical analysis. Therefore, the goal has been to create a way to answer the question mathematically.
Traditional technical indicators require that a time period close before the calculation can be confirmed. This is a fundamental ‘flaw’ in almost every single technical indicator. If someone tells you that a stock ‘tested’ a moving average, that’s not always the case. Why? A moving average is calculated and cannot be confirmed until the end of the time period to which the indicator is being applied to. Therefore, on a daily chart, the calculation that determines the moving average price is not available until the end of the day. In reality, it is not a real-time indicator.
In this module, I will demonstrate mathematically how Trend Following is likely to give a trader an edge. It also helps in reducing risk.