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Trend-Following Trading Rules and Their Anatomy

In: The Ultimate Moving Average Handbook

Author

Listed:
  • Valeriy Zakamulin

    (University of Agder, Norway)

  • Javier Giner

    (University of La Laguna)

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.

Suggested Citation

  • Valeriy Zakamulin & Javier Giner, 2025. "Trend-Following Trading Rules and Their Anatomy," Springer Books, in: The Ultimate Moving Average Handbook, chapter 0, pages 75-107, Springer.
    • Handle: RePEc:spr:sprchp:978-3-031-90907-8_3
    DOI: 10.1007/978-3-031-90907-8_3
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