Dancing with the Trend

Building a Rules-Based Trend Following Model


I’m going to start a new series of articles on building a rules-based trend following model.  For a host of reasons, I cannot provide readers complete details of the trend following model I currently use, but I can simulate most of the concepts in various examples, so you will have a good feel for how it works and what is required.  This article will lay out some of the concepts I plan on covering over the next few months.  I’m quite sure this series will be interspersed with articles on other topics, so I’ll use my normal article titling by adding 2, 3, etc. to the above title.

I will try to use as many of StockCharts.com tools and indicators as I can, but I know at this point I cannot use them for everything. A large number of the charts and tables will be from Microsoft Excel.  Hence, the model we build will be considerably simpler, but the gaps will be filled with much commentary.  The goal is that you will have a good understanding of the model building process, and from that understanding, you can build your own rules-based trend following model.

Concepts to Cover:

Description of Digital and Analog Measures

Description of Compound Measures

Introduction into the Weight of the Evidence

Price Measures

Breadth Measures

Relative Strength Measures

Misc. Measures

Early Warning Measures





Ranking and Selection Measures

               About 20 total

               Explain the need for mandatory and tie-breakers

Pullback Rally Analysis

Rules and Guidelines



               Trade up


Asset Commitment Tables

               Weight of Evidence levels and Early Warning Point System

Overlay Measures



               Trend Gauge

Putting it all together

Performance Analysis

I plan on following the above outline as much as possible; but of course, reserve the right to change it as I move forward.  Finally, the entire success of a rules-based trend following model is not the model itself, but your disciplined execution of it.  Remember, it isn’t always the fiddle, it is the man who holds the bow.

Dance with the Trend,

Greg Morris

Greg Morris
About the author: has been a technical market analyst for over 45 years ranging from analysis software development, to website analysis and education, to money management. He has written four books: Candlestick Charting Explained (and its companion workbook), The Complete Guide to Market Breadth Indicators, and Investing with the Trend. A graduate of the Navy Fighter Weapons "Top Gun" School, Greg is a former Navy fighter pilot who flew F-4 Phantoms on the USS Independence.  He also holds a degree in Aerospace Engineering from the University of Texas. Greg has a long history of understanding market dynamics and portfolio management. Learn More
Subscribe to Dancing with the Trend to be notified whenever a new post is added to this blog!
comments powered by Disqus