Trend-Following Trading Rules and Their Anatomy

Valeriy Zakamulin () and Javier Giner ()
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Valeriy Zakamulin: University of Agder, Norway
Javier Giner: University of La Laguna

Chapter Chapter 3 in The Ultimate Moving Average Handbook, 2025, pp 75-107 from Springer

Abstract: Abstract This chapter introduces key trend-following trading rules, explaining how they work using specific examples. It then demonstrates that any trading indicator based on moving averages of prices can be equivalently expressed as a single moving average of price changes or returns. This insight reveals that, despite the apparent diversity of trading rules and moving averages, their core differences stem from the weighting function applied to returns. Consequently, the characteristics of a trading rule—such as its responsiveness and smoothness—are directly determined by the shape of this weighting function. This perspective provides a unified framework for understanding and comparing trend-following strategies.

Date: 2025
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DOI: 10.1007/978-3-031-90907-8_3

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