The Trend Model

The Trend Model is an uncomplicated moving-average crossover system that is designed to catch medium- and long-term trend changes relatively early in the move. We use a 20-, 50-, and 200-EMA (exponential moving average) to execute this model, however, another combination of moving averages could be used to design a model more suited to your own preferences.

Primary medium-term signals are generated by 20/50-EMA crossovers. A buy signal is generated when the 20-EMA crosses up through the slower 50-EMA. When the 20-EMA crosses down through the 50-EMA, a sell signal is generated.

Long-term buy/sell signals are generated by 50/200-EMA crossovers.

A long position may be opened each time a 20/50-EMA crossover buy signal is generated; however, the long-term 50/200-EMA crossover status must be consulted before opening short positions on a 20/50-EMA crossover sell signal. Short positions should only be taken when the long-term 50/200-EMA is on a sell signal. Otherwise, move to cash (neutral). This is a conservative approach to playing the short side of the market. It is designed to avoid the frequent whipsaws that will occur during bull market corrections, and it limits exposure on the short side to down legs in bear markets.

This model should not be used to manage a portfolio with 100% of the portfolio invested in a single position. Indeed, no timing model should be used in that manner. Always use good money management techniques.