Trend following is a systematic investment approach based on the empirical observation that assets exhibiting strong recent price performance tend to continue outperforming, and those with weak recent performance tend to continue underperforming, over intermediate time horizons. Trend followers buy assets in confirmed uptrends and exit or short assets in confirmed downtrends — without trying to predict where trends will end or to identify the fundamental reasons behind them.

See the comprehensive primary definition at Trend Following for a full treatment of the strategy’s evidence base, implementation approaches, and payoff characteristics.

The core insight of trend following is simple but powerful: you do not need to be able to predict the future to profit from it. You only need to identify when markets are trending — rising or falling — and follow that trend with disciplined entries, exits, and risk management until it ends. The many small losses from false signals are more than offset by the occasional large gains from major trend captures. This positive skewness — small frequent losses, large infrequent gains — is trend following’s defining characteristic and the source of its long-term compounding advantage.