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TRADING SYSTEM - Trend Following Systems

  Trend-following systems attempt to do what their name implies.   They seek out the start of a new trend, and they follow that trend until either they are stopped out or the trend changes.  The most popular and effective trend following system is the Moving-Average-Based Systems. 

  Using Moving Averages with two different period (e.g. 5 and 18 period) of the closing price, one can get buy or sell signals to trade the markets.   Below is the actual chart for Crude Palm Oil Futures, Red Arrow showing Sell Signal when the green line crosses above the red line and Green Arrow showing Buy Signal when the red line crosses above the green line.  The Green line is the Simple Moving Average of the closing price with period 5 while the red line has a period of 18.

MovAv_CPO_eg.jpg (110165 bytes)

  The result of the above trades are as follows:

 

Trades Win/(Loss) Points
  Buy 1678   Sell 1700   22
  Sell 1700   Buy 1711   (11)
  Buy 1711   Sell 1700   (11)
  Sell 1700   Buy 1688   12
  Buy 1688   Sell 1690   2
  Sell 1690   Buy 1692   (2)
  Buy 1692   Sell 1748   56
  Sell 1748   Buy 1779   (31)
  Buy 1779   Sell 1871   92
  Sell 1871   Buy 1854   17
  Buy 1854   Sell 1910   56
  Sell 1910   Buy 1916   (6)
  Buy 1916   Sell 1895   (19)
  Results   177

  Using the crossing of two moving averages with different time periods as a trading system, we can see that a profit of 177 points or 177 x RM25 = RM4425 was made in just one month. 

 

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Futures Trading involves substantial risk of loss and is not suitable for all investors.