Trend following is an investment strategy based on technical analysis. The basic premise is that the market can be regarded either as a bull market or a bear market at a given time.
Trend followers take advantage of these trends and make their buying and selling decisions. Rather than focusing on predicting specific price levels as in other areas of technical analysis, trend followers simply jump on the trend and ride through it.
There are a several different ways and various time frames to determine the general market directions. Traditionally, moving averages and channel breakouts are used to determine current market trends. Here we focus on a brand new trend following approach developed by Dai, Zhang, and Zhu .