Trend Following Quantitative Methodology - Technosight Documentation

1

Strategy Objective, Rationale & Market Regimes

Investment Objective: The Trend Following strategy exploits persistent directional price trends across multi-month horizons using dual simple moving average crossovers, capturing sustained market moves without predicting market tops or bottoms.

Foundational Economic & Behavioral Rationale: Pioneered by Richard Donchian (1960) and documented across centuries of market history by Hurst, Ooi, and Pedersen (2017, "A Century of Evidence on Trend-Following Investing"). Trend following capitalizes on capital inertia, systematic institutional rebalancing, and fundamental macro trends.

Market Regime Suitability:

• Optimal Regimes

Strong trending bull and bear markets, inflationary cycles, and macro regime transitions.

• Challenging Regimes

Choppy, non-directional sideways consolidation where frequent false crossovers generate whipsaw losses.

2

Market Data Inputs

The quantitative engine processes high-fidelity financial market data stored in high-performance QuestDB time-series tables across dual resolution layers:

1. End-of-Day (EOD) OHLCV Dataset (Primary)

Primary data source utilized for indicator calculations, mathematical factor modeling, and primary trade signal generation.

• Open, High, Low, Close (OHLC): Split & dividend adjusted.
• Volume: Total daily traded share volume.
• Universe Coverage: Active US equities spanning Russell 3000 and S&P 500.

2. 15-Minute Intraday Bar Dataset (Auxiliary)

High-frequency intraday bars utilized for auxiliary multi-timeframe confirmation and higher-timeframe regime alignment.

• 15m Interval Bars: Intraday pricing sequence.
• EMA(50, 200, 800) 15m: Triple Exponential Moving Average pattern detection.
• Purpose: Auxiliary signal evaluation and execution timing filter.

3

Indicators and Mathematical Formulations

The Trend Following model computes the relative percentage spread between fast and slow rolling Simple Moving Averages:

$$\text{SMA}_{\text{fast}}(t) = \frac{1}{F} \sum_{i=0}^{F-1} \text{Close}(t - i)$$

$$\text{SMA}_{\text{slow}}(t) = \frac{1}{S} \sum_{i=0}^{S-1} \text{Close}(t - i)$$

$$\text{Spread}(t) = \frac{\text{SMA}_{\text{fast}}(t) - \text{SMA}_{\text{slow}}(t)}{\text{SMA}_{\text{slow}}(t)}$$

Standard institutional parameter pairings: Fast period $F = 50$ days, Slow period $S = 200$ days.

4

Entry & Exit Rules (Trade Execution Logic)

The systematic trade logic for Trend Following executes upon moving average crossovers:

• Long Entry Trigger (+1.0 Signal - Golden Cross)

Condition: Fast moving average exceeds slow moving average: $\text{SMA}_{\text{fast}}(t) > \text{SMA}_{\text{slow}}(t)$ ($\text{Spread} > 0.0$).

• Short Entry Trigger (-1.0 Signal - Death Cross)

Condition: Fast moving average falls below slow moving average: $\text{SMA}_{\text{fast}}(t) < \text{SMA}_{\text{slow}}(t)$ ($\text{Spread} < 0.0$).

• Exit Trigger

Condition: Positions are exited and reversed immediately upon opposite moving average crossover.