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Why Trend Following is Hard – A Quantitative Answer [Premium Articles]

Posted by Price Action Lab Blog on January 29, 2011

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In this blog post I will try to demonstrate using math why trend following is harder than other trading methods that use much shorter timeframes . I will start with the basic fact that a trading system is profitable if, and only if,  the sum of its winning trades is larger than the sum of its losing trades:

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CFTC RULE 4.41

Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated performance results do not represent actual trading. Also, since the trades have not actually been executed, the results may have under- or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity. Hypothetical trading results are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown.

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