If you are not a large hedger or an institutional trader, you can follow either of two basic strategies when you design a trading system. You can be a trend follower, or you can take antitrend positions. If you are a trend follower, you will typically take intermediate-term positions. In contrast, with a countertrend strategy, you take shorter-term positions that anticipate trends. This section explores both strategies and shows that a trend-following approach is more likely to be profitable over the long run than an antitrend approach.
Table 3.2 shows test results for a stochastic-oscillator-based antitrend trading system provided with System Writer Plus™ software from Omega Research. The stochastic oscillator is a range-location oscillator that shows where today's close is within its trading range over the last x days. If the close is near the top of the range, then oscillator values are greater than 80. The next move in prices will probably be toward the lower end of the range. Similarly, if the close is near the lower
To Follow the Trend or Not?45 Table 3.2 Stochastic-oscillator antitrend trading system results