The Origins of Trend Following

Here is one view about the origins of trend following. This has been posted before, but time for a repost. An excerpt:

“Although trend following has been a popular trading philosophy for many years, surprisingly little has been written about its origins and history. This is partly due, no doubt, to the scarcity of available information prior to the early 20th century, and because until about 50 years ago trend following as a philosophy had not been completely articulated. To be sure, by the early 1950s many trend following methodologies were in common use – and may have been for centuries – but the underlying concept had not been fully defined, or even given a name. One reason for this paucity of early information is suggested by the “following” part of the term “trend following.” The implication is one of passivity, of reaction, rather than of bold, assertive action — and human nature shows a distinct preference for the latter. Also, trend following appears to be too simple an idea to be taken seriously. Indeed, simple ideas can take a very long time to be accepted – think of the concept of a negative number, or of zero: simple to us, but problematic to our ancestors.”

Quoting from a 1954 work by William Dunnigan. Dunnigan states:

“We think that “forecasting” should be thought of in the light of measuring the direction of today’s trend and then turning to the Law of Inertia (momentum) for assurance that probabilities favor the continuation of that trend for an unknown period of time into the future. This is trend following, and it does not require us to don the garment of the mystic and look into the crystal balls of the future. Let us believe that it is possible to profit through economic changes by following today’s trend, as it is revealed statistically day-by-day, week-by-week, or month-by-month. In doing this we should entertain no preconceived notions as to whether business is going to boom or bust, or whether the Dow-Jones Industrial Average is going to 500 or 50. We will merely chart our course and steer our ship in the direction of the prevailing wind. When the economic weather changes, we will change our course with it and will not try to forecast the future time or place at which the wind will change.”

The world changes and trend following stays the same by always adjusting to the current situation.

The Author