A systematic approach that buys markets that have been rising and sells those that have been falling, sizing positions by volatility and cutting losers by rule.
Signals are usually simple: a moving-average crossover or a breakout of an n-day range, applied identically across dozens of futures markets. Diversification comes from the number of markets rather than from cleverness in any one.
The return profile is long-tailed. Most trades lose small amounts, a minority produce very large gains, and the strategy's overall expectancy depends on not truncating the winners. Win rates near 35% are normal and are not a defect.
Trend following has historically done well in prolonged directional moves, including equity bear markets, and poorly in choppy ranges where signals whipsaw. Its worst environments are precisely the calm, mean-reverting periods that make investors most impatient with it. See momentum-factor and whipsaw.
Original diagrams for the ideas on this page. Illustrative, not real market data.
Expectancy: the average trade. Forty trades sorted by outcome: 24 small losses and 16 larger wins. Weighting each side by how often it happens gives the average result per trade, marked here by the dashed line at +$120.
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