With the ever-increasing use of virtual currency and its volatility, cryptocurrencies are being adopted across the world for various transactions. Cryptocurrency derivatives trading is a new trading area that many daytime traders are interested in. The last time we give you a brief introduction to the types of orders. In this article, we will give you the basics introduction of trend-following systems, so you may have a deeper understanding of it.
By definition, trend-following systems never sell near the high or buy near the low, because a meaningful opposite price move is required to signal a trade. Thus, in using this type of system, the trader will always miss the first part of a price move and may surrender a significant portion of profits before an opposite signal is received assuming the system is always in the market.
There is a basic trade-off involved in the choice of the sensitivity, or speed, of a trend-following system. a sensitive system, which response quickly to signs of a trend reversal, will tend to maximize profits on valid signals, but it will also generate far more false signals. a nonsensitive, or slow, system will reflect the reverse set of characteristics.
Many traders become obsessed with trying to catch every market wiggle. Such a predilection leads them toward faster and faster trend-following systems. although in some markets fast systems consistently outperform slow systems, in most markets the reverse is true, as the minimization of losing trades and commission costs in slow systems more than offsets the reduced profits in the good trades. This observation is only intended as a cautionary note against the natural tendency toward seeking out more sensitive systems. However, in all cases, the choice between fast and slow systems must be determined on the basis of empirical observation and the trader’s subjective preferences.
Some common problems with standard trend-following systems
The first problem many similar systems. Many different trend-following systems will generate similar signals. Thus, it is not unusual for a number of trend-following systems to signal a trade during the same one- to five-day period. Because many speculators and futures funds base their decisions on basic trend-following systems, their common action can result in a flood of similar orders. under such circumstances, traders using these systems may find their market and stop orders filled well beyond the intended price, if there is a paucity of offsetting orders.
The second one is cannot make money in trading range markets. The best any trend-following system can do during a period of sideways price action is to break even—that is, generate no new trade signals. in most cases, however, trading range markets will be characterized by whipsaw losses.
This is a particularly significant consideration since sideways price action represents the predominant state of most markets.
Thanks for your time, after reading this article, you may have a deeper understanding of the moving averages? It was an honor to share the experience of cryptocurrency derivatives trading with you. In the next time, we will discuss the chart patterns. For more information, please follow all of our newest articles on Bybit.
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