Does Trend Following Still Work on Stocks?

In 2005, a whitepaper by Crittenden and Wilcox posed the question: “Does Trend Following Work on Stocks?”. While trend following was by no means a groundbreaking concept at that point, the paper was one of the first to publish the results of tests across decades of data and tens of thousands of stocks, and the result was a resounding yes. But markets have evolved dramatically since then, we’ve had a GFC, a pandemic, and rapid technological changes.

So, does trend following still work? This question was posed once more in a paper published this month by Concretum Research. This new paper revisits a long-only trend following strategy proposed in the 2005 publication, extending the results to see if the strategy has maintained its edge across the near two decades since.
While the full study conclusions haven’t been released yet, I’ll touch on some quotations from the paper and see how they relate to our own strategies which have been trading live across this same period.

One finding was that “we observe a slight decrease in average profitability post-publication [2005]”. While The Chartist trend following strategies have seen returns diminished in the post-COVID years, these systems have always been for long-term investments and will naturally ebb and flow. 2024 however saw a return to form for these strategies. The Growth Portfolio for example rose +39.16% and the Weekend Trend Trader +47.4%, this compared to the benchmark ASX All Ordinaries’ +7.5% for the same period. Nick’s slightly modified version of the Weekend Trend Trader turnkey gained +78.6% across the year.

Another finding was that “less than 7% of the trades were responsible for generating all of the strategy’s profits.” This is consistent with our portfolios, as we’ve discussed in previous newsletters, when it comes to trend-following and momentum strategies, the majority of trades form a base of minor growth, with a small group of outliers catching the trend and producing the profits.

If you’re interested in trading our trend-following strategies alongside us, sign up for a free trial here to see how it works. Alternatively, if you prefer to trade on your own, use our Weekend Trend Trader code as is or as a base from which to build your own strategies.