This document discusses various techniques for analyzing trends using moving averages and trend lines. It covers strategies using two trend lines, Donchian's moving averages, the golden cross and death cross indicators, rate-of-change methods, and selecting optimal parameters like time periods. Key aspects include entering long when moving averages crossover going up, exiting when trends conflict, and anticipating trend changes by projecting moving average crossovers. The goal is to capture trends from short to long term by requiring consistency across multiple time frames.

1. Trend System
Part II

2. Techniques Using Two Trend lines
Two Moving Averages
Donchian's 5- and
20-Day
Donchian's 20- and 40-
Day Breakout
Golden Cross and the
Death Cross
ROC Method
Staying Ahead of the
Crowd
8 and 18 days

3. Techniques Using Two Trend lines
(a) Enter and exit when the trend
lines cross.
(b) Buy and sell when the price
crosses the trend lines, staying out
of the market when prices are
between the trend lines.
(c) Enter when both trend lines are
moving in the same direction; exit
when they conflict.

4. Techniques Using Two Trend lines
1. Buy when the faster moving average crosses the slower moving
average going up. Sell short when the faster moving average crosses
the slower moving average going down.
2. Buy when the current price crosses above both moving averages
and close out long positions when prices cross below either moving
average. Sell short when the current price crosses below both moving
averages, and close out short positions when prices cross above
either moving average.
3. Buy when the faster trendline turns up and the slower trendline is
up. Sell short when the faster trendline turns down and the slower
trendline is down. Exit the trade when the two trendlines are moving
in opposite directions.

5. Donchian's 5- and 20-Day Moving Average System
1. A 5-day moving average
2. A 20-day moving average
3. The average true range based on the longer moving average
• Three calculations are then used with the rules
• If position is not long and Closet > MA5t−1 + 1ATRt−1 and closet >
MA20t−1 + 1ATRt−1 then buy
• If position is not short and Closet < MA5t−1 − 1ATRt−1 and closet <
MA20t−1 − 1ATRt−1 then sell short
• If position is long and (Closet < MA5t−1 − 1ATRt−1 or closet <
MA20t−1 − 1ATRt−1) then exit long position
• If position is short and (Closet > MA5t−1 + 1ATRt−1 or closet >
MA20t−1 + 1ATRt−1) then cover short position

6. Donchian's 20- and 40-Day Breakout
• One level slower than the 5- and 20-day average is Donchian's 20-
and 40-Day Breakout.
• The Golden Cross and the Death Cross
• Golden Cross is the point at which the 50-day average crosses
above the 200-day average indicating the beginning of a bullish
move in the market.
• When the 50-day average crosses below the 200 day, it is ominously
called the Death Cross.

7. ROC Method
• classic method for trading the major index is Wood shedder's long-
term indicator
• The rules are
• Buy when the 5-day ROC (rate-of-change) is below the 252-day ROC
for two consecutive days.
• Exit the long when the 5-day ROC is above the 252-day ROC for two
consecutive days.
• When there is no position, the system earns one-half of the cash 3-
month T-bill rate.

8. Staying Ahead of the Crowd
• During the 1980s and 1990s there was a trend system that used 8
and 18 days to beat the 10 and 20 days that was most popular.
• The following calculations would use fast period = 8 and slow period
= 18. The difference period = 9.

9. 4-9-18 Crossover Model
• the 4-9-18 Crossover model was very popular.
• It seems likely that the selection of 4, 9, and 18 days was a
conscious effort to be slightly ahead of the 5, 10, and 20 days
frequently used in moving average systems during that period.
• high frequency traders continue to look for the smallest edge that
keeps them ahead of the competition
• 3-Crossover method compared to the 2-Crossover, results showed
that the added timing in the 3-Crossover reduced the number of
trades and increased the size of the returns per contract.
• Overall, the profitability remained about the same.

10. Comprehensive Studies
• Selecting the Right Trend Method and Speed
• Moving Average Sequences: Signal Progression
• Early Exits from a Trend
• Moving Average Projected Crossovers

11. Selecting the Right Trend Method and Speed
• Right Trend Method
• For the trader or speculator, the right moving average speed is the one that
produces the best performance profile. This profile could be simply maximum
profits, or it could be a more complex combination of profits, risk, and time in
the market.
• Selecting the Trend Speed
• To find your own best trend speed without the use of a computer, mark on a
chart the beginning and end of each price move that you would like to
capture.
• These trends may occur every few days, or only three or four times each year.

12. Early Exits from a Trend
• there are always practical exceptions if you are allowed to add discretion to
your trading decisions.
• oldest truths for trend-following is “Take your losses and let your profits run.”
• By imposing profit-taking, or even stop-losses, this can be changed to “Take
your profits and let your losses run.”
• There is a need to be very careful when making exceptions.
• If that policy changes, then the trend is over, even if the trendline has not yet
reversed direction.

13. Moving Average Projected Crossovers
• If moving averages can successfully be used to identify the trend direction, it
follows that a projection of the moving average will be valuable in anticipating
when the trends will change.
• The projected crossover price is most useful when it is likely that a trend
change will occur within a few days, that is, when the two moving averages
begin converging and become close in value.
• The change in the projected crossover is considered a more valuable tool by
Lambert. He creates a Market Direction Indicator (MDI)
• The point at which the MDI crosses the zero line moving higher is a buy signal,
and the point where it crosses moving lower is a sell signal.
• when the price penetrates the moving average trend line and when the
moving average trend line changes up or down.
• In the previous section, the forecast was based on when the price crosses the
moving average, which is a very common way of generating a trading signal.

14. Moving Average Sequences: Signal Progression
• A moving average is simply a consensus of direction.
• It is an approximation of values intended to steer a trader to the right side of the
market at the right time.
• It is most fallible when prices are changing direction or going sideways.
Averaging the sequence
• Steady progression of trend changes from the short term to the long term.
• The idea of requiring consistency in a range of trends can be automated by selecting
a range of calculation periods preceding a target period, finding the trend signal (an
uptrend or downtrend), and then deciding according to one of two rules:
• 1. Average the final trend values to get the average trend result. Compare the
previous average result with the current value to determine the direction of the
trend.
• 2. Scan the trend directions for consistent progression.

15. Moving Average Sequences: Signal Progression