Trend following is an investment strategy that seeks to capture gains by identifying and trading in the direction of established market trends. Trend followers aim to ride sustained movements, upward or downward, using rules-based systems often driven by price momentum, moving averages, or breakout signals.
Trend following is a popular investment strategy among both individual and institutional investors. Reference [1] examined and compared the performance of the trend following strategy in the U.S., China, and cryptocurrency markets.
The paper applies trend-following strategies using simple, exponential, and double exponential moving averages. For BTCUSD, the S&P 500, and the CSI 300 Index, short windows of 1–20 days and long windows of 21–50 days are used. A buy signal is triggered when the short-term average exceeds the long-term average, and a sell signal when it falls below.
The authors pointed out,
The results of this paper show that: first, the Bitcoin trend-following strategy performs more significantly than the traditional financial index under special market conditions (such as during the COVID-19 epidemic); second, the DEMA trend-following strategy of Bitcoin is relatively stable in terms of Sharpe ratio, especially in the bear market; Third, there is a trend of negative or no correlation between Bitcoin and traditional financial indexes, indicating that Bitcoin may serve as an effective hedging tool.
In short, the study finds that Bitcoin trend-following strategies outperform traditional indices during market stress, show stable Sharpe ratios in bear markets, and exhibit low or negative correlation with traditional assets, suggesting Bitcoin’s potential as a hedge.
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References
[1] L Mo, L Wang, Z Zhang, K Huang, Effectiveness Test of Trend Following Strategy for Emerging Assets and Traditional Assets: A Case Study of Digital Currency and Index Futures, Modern Management based on Big Data VI, 2025
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