By Harry Long:
It is almost impossible to peruse a list of investment bestsellers without noticing that they seem to break down into two main categories–value investing and trend following. The value investing approach pioneered by Graham & Dodd is widely emulated and needs no further introduction.
However, trend following, while popular, is not often objectively studied. Its adherents often take on the wide-eyed devotion of cult members, and its detractors dismiss it out of hand without coldly examining objective evidence. Where does the truth lie?
As always, the market provides a laboratory to test ideas. A thoroughly exhaustive study of the issue is impossible within the confines of an article. However, we can easily apply the most popular trend following approach to ETFs and examine if they have currency.
The most popular trend following system is the Golden Cross/Death Cross. The Golden Cross, as popularly followed, calls for buying on the following