最後更新日期：2023年09月08日
The Trend Following Strategy has gained popularity among investors in the US stock market due to the distinct trend patterns it exhibits. This strategy helps investors select high-quality stocks with a focus on “riding the trend.” The fundamental principle of Trend Following is to go with the flow – once a stock’s trend is established, investors stick with it and avoid selling their holdings prematurely. Through techniques like Trailing Stop, investors aim to let the price momentum unfold and showcase its upward potential.
Now, let’s delve into how to implement a trend-following strategy in the US stock market. How do you enter a trade? How can you effectively let the profit run? How do you manage losses? And how can you efficiently use AI trend indicators from Growin’s Stock Mining to assist you in participating in the US stock market trends?
Introduction of Trend Trading
The content of Trend trading can be divided into two primary sections. First of all, we will share the concept of trend trading. Then discuss the operational principles, allowing you to gradually understand what trend trading is and how to implement it effectively.
Concept of Trend Trading
Stock prices can be categorized into two states: trending and consolidation. A trend signifies the direction in which the stock price moves over a period of time. Once a trend is established, the stock price tends to follow it until the trend ends. Subsequently, there is typically a consolidation phase, during which stock prices accumulate energy to shape a new trend. This cycle continuously repeats itself.
In trend trading, the investor’s psychology and execution are crucial. To succeed, you need to achieve the following three points:
- Willingness to buy high and sell low: Trends often start at relatively higher price levels. Selling is recommended when the price breaks the upward trend, usually at a relatively lower level.
- 2. Exercising patience in holding positions: After entering a trend trade, refrain from prematurely taking profits. Leave room for the stock price to showcase its potential.
- 3. Accepting a lower winningrate while seeking larger gains and smaller losses: Genuine trend opportunities in the stock market are rare. As a result, if you misjudge a trend, it’s important to cut losses promptly without becoming overly preoccupied with the winning rate. Conversely, when you correctly identify a trend, aim for substantial gains to achieve the goal of maximizing profits during winning trades and minimizing losses.
Operational Principles of Trend Trading
Building upon the aforementioned points , we will explain the operational principles of trend trading in both bullish and bearish trends:
Getting Long Position
- During a bullish trend, establishing long positions when stock prices temporarily pull back or consolidate.
- As stock prices move along the upward trend, it’s advisable to maintain long positions aligned with the trend. Once stock prices break the upward trend, promptly take profits or stop losses.
Getting Short Position
- Establish short positions when stock prices experience temporary rallies or consolidation within a downtrend.
- When stock prices move along the downward trend, it’s advisable to maintain short positions align with the trend. If stock prices surge above the descending trend, it’s important to swiftly take profits and stop losses.
To master the entry and exit of trends, it’s essential to keep in mind the core principles of trend following. Additionally, there are various strategies and trading techniques to consider, such as “Trend Trading (I) – Anchor,” which explains how to increase entry success rates, or “Trend Trading (II) – The Art of Exiting,” which delves into the skill of staggered exits.
US Stock Trends – Introduction to AI Trend Indicator
Trend traders typically do analyses and make decisions based on stock price movements, trading volume, and technical indicators. Common trend indicators like moving averages, MACD, CCI, ATR, and others are highly favored by investors. However, with the advancement of AI technology, we can now use AI to conduct more accurate analyses and predictions by incorporating all commonly used trend indicators, patterns, and volume-price information.
Growin Stock Mining service provides an AI-generated “Trend” indicator, which incorporates numerous technical indicators and price patterns into its analysis. The factors used for AI learning include moving averages, ATR, volatility, and more. This AI-generated Trend indicator is also combined with Growin’s proprietary indicators Power Squeeze and Surfing Trend indicators to create a comprehensive scoring system. The Trend indicator assigns a score from 1 to 5 for each stock:
- When the score is between 4 and 5: It indicates the stock could potentially experience a potential strong bullish trend in the near future.
- When the score is between 1 and 2: It suggests the stock could experience a potential strong bearish trend in the near future.
- When the score is in the middle at 3: It implies the stock could experience a potential period of consolidation in the near future.
Taking Tesla (TSLA) stock price movement over the past three years as an example. We can clearly observe the changes in the trend score and how they correlate with the subsequent price movements:
Through the visual charts presented on the Growin website, we can observe that from 2019 to the present, there have been 6 times where Tesla (TSLA) had a trend score of 5 points. Among these, 3 times successfully captured significant uptrends, resulting in a cumulative profit of 380% return, while the other 3 times resulted in smaller gains and losses. This once again emphasizes the importance of strict discipline in trend trading. By adhering to the strategy of entering when the trend score is at 5 points and exiting when the uptrend ends (trend score falls below 3 points), substantial profits can be achieved during favorable trends, while disciplined stop-loss can control risks during unfavorable trends.
US Stock Trends – The advantage of AI Trend Indicator
Through extensive data analysis, we can generate trend scores for each industry and stock, allowing us to quickly assess and filter whether stocks of interest are likely to experience significant trend movements. Additionally, due to the diverse nature of each stock’s industry and characteristics, a major advantage of the AI Trend Indicator is the ability to rapidly generate backtest results tailored to each individual stock. This enables us to observe the historical performance of all signals generated in relation to the stock’s history. This way, investors can immediately determine whether this trend indicator is suitable for application to a particular stock.
Using Tesla (TSLA) as an example again, Growin compiles the performance of Tesla’s stock price under each trend score over the past 13 years, as shown in the chart below:
By examining historical data, we can clearly observe that buying Tesla (TSLA) stocks when the trend scores are 4 or 5 leads to more prominent investment returns through trend trading. Particularly, when the score is 5, there is an average 16% return within approximately 22 days. Despite a modest win rate of only 53%, the strategy generates a 32% return when the stock price rises and a minimal average loss of -2.93% when the price falls. This closely aligns with the key principles of trend trading: achieving high winning rates is not essential; however, profits should be significant when correctly capturing trends, while losses should be minimized when misjudging them.
US Stock Trend Selection and application
What would be the effect of applying the AI Trend Indicator to all public companies in the United States? Using data from 2007 to February 2023, a period that included significant market events such as the subprime financial crisis, European debt crisis, Chinese stock market meltdown, US-China trade war, and Covid-19 pandemic, the AI Trend Indicator was applied to over 6,000 stocks. The statistical results are as follows:
| TrendScore | Avg. Return | Avg. Days Held | Winning Rate | Avg. Profit% | Avg. Losing% |
| 5 | 5.27% | 21.70 | 47.91% | 14.54% | -2.35% |
| 4 | 1.15% | 6.68 | 37.15% | 8.51% | -2.57% |
| 3 | -0.37% | 6.66 | 30.71% | 5.34% | -2.65% |
| 2 | -1.05% | 6.95 | 31.80% | 5.42% | -3.69% |
| 1 | -5.42% | 22.80 | 31.50% | 5.78% | -10.04% |
We can clearly observe that even without considering any fundamental or technical criteria, in the backtesting data of over 6,000 stocks, when the trend score is equal to 5, we achieve an average return of 5.27% over an average period of 21.7 days. Even though we understand that the winning rate is not a crucial factor in trend trading and that the focus should be on achieving larger profits than losses, it’s worth noting that when the trend score is 5, the winning rate still stands at a respectable 47.91%. In such cases, the average gain when profitable is 14.54%, while the average loss when unprofitable is 2.35%. This outcome is highly consistent with our expectations.
Hence, we can summarize an efficient yet straightforward trend-based stock selection strategy as follows:
- Entry: Stocks with trend scores of 4 or higher.
- Exit: Stocks with trend scores falling below 4.
Certainly, we can enhance the basic trend trading strategy by incorporating more fundamental or technical conditions. Here are three points that can refine the strategy:
- Implement a Scale in and Scale out Mechanism: For instance, enter with half a position when the trend score is 4 and the other half when it’s 5. Also, consider selling half the position when the trend score drops to 3 and fully exit when the score falls below 3.
- Integrate Fundamental Filtering: Using fundamental data to screen potential stocks first, ensuring that the selected stocks exhibit industry or fundamental growth. Then, use the trend score as a trigger for entry.
- Incorporate Growin’s Whale Interest Analysis: Track stocks with significant institutional buying and accumulation to ensure substantial institutional backing. After confirming institutional interest, use the trend score to determine the entry point.
Growin Stock Mining -> A platform that allows you to access the value, trend, and whale interest analysis scores for the stocks you're interested in!Conclusion
Trend trading is a popular strategy in US stock investing due to its simple and understandable principles. However, executing it successfully is not as easy as it seems. Investors need to possess a strong trading psychology: letting go of the obsession with high winning rate, allowing profits to accumulate, and controlling losses when they occur. By adhering to these principles, over the long term, one can become a successful trend trader.
In this article, we introduced a powerful trend indicator generated by AI. This indicator can quickly identify the potential future trends of each stock, helping you spot momentum stocks where trends are emerging. By familiarizing yourself with its usage, you can significantly enhance your ability to identify stocks with trend potential early on. Additionally, you can complement this trend indicator with fundamental, technical, and whale interest analysis to create a more effective trend trading strategy.
Want to know more about stocks with high AI Trend scores? Or interested in knowing when your preferred stocks are transitioning from a bearish to a bullish trend? Feel free to try out Growin Stock Mining for free, and let AI and data assist you in making more efficient investment decisions!
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