AllanTrends is a simple, efficient and profitable trend following trading system. Let’s start with brief example illustrating what AllanTrends does best and how it can be used to enhance your trading.
Below is a Daily chart of the S&P 500 (“SPX”) covering about six months of trading in the middle of 2011. The AllanTrends algorithm is represented by the solid navy line, a trend model based strictly on market action so that prices are always either above the trend line (“LONG”) or below the trend line (“SHORT”).
SPX Daily Trend Model
In other words, the trading model is always LONG or SHORT based on what the AllanTrends algorithm has determined to be the dominant trend of the market.
The chart above is a real time chart and those are actual signals that were generated by the algorithm. Among other things, the chart illustrates that the model catches trends not at the absolute tops and bottoms, but early enough to garner the lion’s share of any sizable trend and that it will be on the right side of any major market move, whether up or down. Note also that the algorithm is self-correcting, i.e. reversals-in-trend act as natural stops, thus having an automatically limited stop/loss, while leaving the potential for gains unlimited as long as the dominant trend is in force.
The trading system is inherently straightforward: Trade on the side of the dominant trend of the market as determined by the trend algorithm. Reverse positions when the trend reverses direction.