Trend trading or trend following In stocks is a strategy that has been around for a very long time. This trading strategy has been studied Extensively in several of the major stock markets around the world, however. There has not been. A good study. Into the effectiveness of trend following. That covers a very broad range of stock markets globally. In this article I am going to share with you. The results of A trend trading system? Applied to a broad range of global stock markets.

What are the biggest challenges that traders face Is inconsistency of trading results. Inconsistency is often caused by insufficient diversification. Because. Each market may. Move. In strong trends for only some of the time. And. Trend traders in particular. Will spend a large proportion of their time in drawdown. If they are only trading one stock market. From the longside. Too many traders tend to be myopic in their focus and only trade one or two large international markets for example the US stock market. whenever I talk to traders about diversifying internationally the first market they usually go to in their mind is the US stock market the question is is this the best move to diversify your portfolio of trading systems?

In this article I present the backtests of a very simple trend trading system applied to a wide variety of markets. as you will see some of the results are very surprising some markets stand out as exceptional trading opportunities while others suffer from very inconsistent results overtime. What this demonstrates is that each market has its own unique character and while this one system cannot rationally be expected to perform exceptionally well in all markets around the world, this article provides an excellent starting point for further research to develop trend trading systems specific to each market. indeed this system is rudimentary in nature however the enlightened stock trading approach to trading system development requires that the system should have an edge in its rawest form before optimization filtering and fine tuning is undertaken. If this is not the case then chances are all of that work optimising fine tuning and filtering is purely resulting in curve fitting rather than improving of your raw edge.

So the purpose of this article is to demonstrate where broad based trend trading in stocks provides traders with a raw edge worth pursuing. Below you’ll see I’ve tested trend trading in the Australian market the US market the whole common market Shanghai the Philippines Malaysia Japan Taiwan London many European countries and others… The results could shock you.

My goal in this article is to make you think more deeply about your global diversification count system development efforts and hopefully show you that casting your net further afield into alternative markets is indeed an opportunity worth investigating.

Rules of the Trend Trading System

For the purpose of this research I have started with a very simple (but effective) trend trading system and applied this to each market. The rules of the stock trend trading system are:

BUY the next bar on open if:

• The stock’s closing price is equal to the 200 day highest close
• The stock’s closing price is above the 200 bar simple moving average
• The 20 day average turnover (Close * Volume) is greater than 1 million U.S. dollars or equivalent per day

SELL the next bar on open if:

• The stock touches a 25% trailing stop intraday

Position Sizing and Portfolio Management:

• Each trade is allocated 5% of equity
• Maximum of 20 simultaneous positions
• No leverage

Commission and Slippage Assumptions:

• Commissions have been included in the study and have been allocated at 0.5% per side
• Given the generous liquidity requirement used this Commission allowance should be more than sufficient to cover slippage and commissions in most markets

Clearly this is not the most sophisticated trading system in the world and in fact inside The Trader Success System, students get access to several high performing trend trading systems that dramatically outperform this simple system in backtesting.

Despite the simplicity of this system, in many markets it does outperform buy and hold, so this basic trend trading approach should serve as an adequate system to compare the “trendiness” of each market we’ve investigated.

Once a potentially profitable trend trading market is found using this very raw system a more refined and profitable approach can be developed rather quickly.

Backtesting the Portfolio

To analyse the performance of the trend trading system in each market we will use Amibroker using a portfolio backtest from 1 January 1990 to 28 February 2023. This is a 30 year backtest that should give us more than enough history to evaluate whether trend trading works in each market, and how stable the trading strategy is in that market.

The data used for this backtest comes from Norgate for US, TSX and ASX and includes delisted stocks. For other markets the data was sourced from Metastock.

Trend Trading Performance Statistics

We will evaluate the performance using the following performance metrics:

• Compound Annual Return
• Risk Adjusted Return
• Maximum Historical Drawdown
• CAR/MDD
• Average Profit Per Trade
• Percent Winners

We will also use the shape of the equity curve (plotted on a logarithmic scale) to evaluate how ‘tradeable’ the market is with a trend trading system. Finally we will look at the underwater equity chart to evaluate the drawdown profile.

Stock Markets We Backtested

The stock markets that we have backtested and included in this study include:

• USA
  • NYSE
  • Nasdaq
  • AMEX
  • Delisted
• Toronto Stock Exchange (TSX)
• Australian Stock Exchange (ASX)
• Hong Kong Stock Exchange (HKSE)
• Shanghai Stock Exchange
• Philippines Stock Exchange
• Malaysia Stock Market (Bursa Malaysia)
• Tokyo Stock Exchange
• Singapore Stock Exchange
• Bovespa (Brazil Stock Market)
• Xetra
• OMX Exchange (Nordic and Baltic)
• Tel Aviv (Isreal)
• Mexican Stock Exchange

US Stock Market Trend Trading Performance

The US stock market trend trading performance was extremely underwhelming. While this broad based trend trading strategy did work well in the US Stock Market up until the Global Financial Crisis in 2007, since then results have been extremely volatile and the drawdown of the strategy has increased.

It certainly appears as though trend trading does have an edge in the US Stock Market, however when applied to the whole market this edge is weak and seems to be decaying over time. In the next section we will look at the different US exchanges separately to understand whether the same findings apply at an exchange level for the NYSE, Nasdaq and AMEX exchanges.

Backtest Statistics – US Stock Market Trend Trading

• Annual Return 8%
• Risk Adjusted Return 8%
• system % drawdown -59%
• CAR/MaxDD 0.14
• Average Profit/Loss 5%
• Percent Winners 37%
• Average Win / Average Loss 2.42

Backtest Equity Curve for US Stock Market Trend Trading System (Log Scale):

NYSE Trend Trading Performance

The New York Stock Exchange trend trading performance was quite a bit better than the whole US market combined. The compound annual return was 10% and the drawdown was 42% compared to 8% and 59% respectively for the whole market. This implies that within the US Stock Market the different exchanges certainly have quite different performance / behavioural characteristics.

Based on the performance statistics and the equity curve below it certainly seems as though a viable trend trading system could be developed for the New York Stock Exchange.

Backtest Performance Statistics for NYSE Stock Market Trend Trading System:

• Annual Return % 10%
• Risk Adjusted Return % 10%
• system % drawdown -42%
• CAR/MaxDD 0.24
• Profit/Loss  16%
• Winners 43%
• Average Win / Average Loss 3.52

Note that these backtest results are only on currently listed NYSE stocks because the delisted stock history provided by Norgate does not specify which exchange they were listed on prior to delisting. Performance metrics are still useable because despite some survivorship bias in the results, you will see in the delisted stocks section of this analysis that the trend trading performance for stocks that have now been delisted was actually stronger than for currently listed stocks.

Backtest Equity Curve for NYSE Stock Market Trend Trading System (Log Scale):

Nasdaq Trend Trading Performance

The trend trading strategy applied to the Nasdaq stock exchange performed extremely strongly up until 2000 during the dot com bubble, however since that time the performance has tapered off substantially. While still profitable the simple trend trading system applied to the Nasdaq since 2000 was underwhelming.

A viable trend trading system could still potentially be developed for the Nasdaq stock exchange, however the decay since 2000 indicates to me that the NYSE may be more attractive given the equity curve for the NYSE does not show the same signs of decay.

This does not mean that a profitable trend trading strategy cannot be developed for Nasdaq stocks, I suspect the largest stocks that get the most attention and stocks within the Nasdaq 100 probably do trend well, however broadly across the Nasdaq exchange trend trading does not seem terribly attractive compared to NYSE stocks.

Backtest Performance Statistics for Nasdaq Stock Market Trend Trading System:

• Annual Return % 12%
• Risk Adjusted Return % 13%
• system % drawdown -55%
• CAR/MaxDD 0.22
• Profit/Loss  8%
• Winners 38%
• Average Win / Average Loss 2.86

Note that these backtest results are only on currently listed Nasdaq stocks because the delisted stock history provided by Norgate does not specify which exchange they were listed on prior to delisting. Performance metrics are still useable because despite some survivorship bias in the results, you will see in the delisted stocks section of this analysis that the trend trading performance for stocks that have now been delisted was actually stronger than for currently listed stocks.

Backtest Equity Curve for Nasdaq Stock Market Trend Trading System (Log Scale):

AMEX Trend Trading Performance

The performance of the trend trading strategy applied to stocks listed on the AMEX exchange (now called the NYSE American) has been fairly terrible. The compound annual return was barely positive at 2% and the drawdown was substantial at 43%. Based on this performance and the erratic equity curve it seems a fair conclusion that stocks listed on the AMEX stock exchange do not trend well in comparison to the NYSE and Nasdaq stocks.

Backtest Performance Statistics for AMEX Stock Market Trend Trading System:

• Annual Return % 2%
• Risk Adjusted Return % 6%
• system % drawdown -43%
• CAR/MaxDD 0.05
• Profit/Loss  2%
• Winners 35%
• Average Win / Average Loss 2.18

Note that these backtest results are only on currently listed AMEX stocks because the delisted stock history provided by Norgate does not specify which exchange they were listed on prior to delisting. Performance metrics are still useable because despite some survivorship bias in the results, you will see in the delisted stocks section of this analysis that the trend trading performance for stocks that have now been delisted was actually stronger than for currently listed stocks.

Backtest Equity Curve for NYSE Stock Market Trend Trading System (Log Scale):

Delisted US Stock Trend Trading Performance

There is often a lot of crowing by certain well know trading educators about how survivorship bias ruins your trading results by making them excessively optimistic. There are two types of survivorship bias:

1. Index constituent survivorship bias: This is where you backtest a system for example on the current 500 stocks in the S&P500 Index and make decisions based on the backtest. This is a HUGE problem because your backtest is cheating because it has advanced knowledge of which stocks will survive and become part of the index in the present day. This type of survivorship bias must be avoided at all costs.

2. Company survivorship bias: This is where you backtest on the whole market (not just stocks in the index), but you only backtest with the currently listed stocks because you don’t have data for all the delisted stocks. Luckily Norgate provided data for all of the delisted stocks in the US, ASX and TSX, but outside that delisted data is not generally available. Now many people refuse to trade outside these markets because they don’t have delisted data, but if you are using a trend trading system this is really not a problem because trend trading systems typically work very well on stocks that have previously been delisted… so this means that by backtesting your system on currently listed data only you are not being overly optimistic (unlike in the case of index constituent survivorship bias). To demonstrate this, I have applied our trend trading system to all delisted stocks in the US, and the performance stats are below. In fact, one could argue that by backtesting this system without the delisted stocks (in the NYSE, Nasdaq & Amex analysis presented above) we were actually being conservative since the delisted data gives better results! Since delisted stock data is not available for markets outside US, ASX and TSX, we have to accept we are only backtesting on currently listed stocks for these markets, however, as we have shown, this does not introduce any material bias or optimism, in fact I have found the opposite in that including delisted stocks generally improves the backtested performance of trend trading systems.

Of course we can’t trade delisted stocks in real time, I just wanted to include this analysis so that I don’t get 50 comments below about how my test results have survivorship bias and are therefore wrong… if that is what you are thinking then I recommend you investigate further if that is the case. Many of my systems perform dramatically better when delisted stocks are included compared to when they are not (this is a good thing).

Backtest Performance Statistics for Delisted US Stocks Trend Trading System:

• Annual Return % 12%
• Risk Adjusted Return % 12%
• system % drawdown -58%
• CAR/MaxDD  0.20
• Profit/Loss  6%
• Winners 42%
• Average Win / Average Loss 2.24

Note that these backtest results are only on currently listed Nasdaq stocks because the delisted stock history provided by Norgate does not specify which exchange they were listed on prior to delisting. Performance metrics are still useable because despite some survivorship bias in the results, you will see in the delisted stocks section of this analysis that the trend trading performance for stocks that have now been delisted was actually stronger than for currently listed stocks.

Backtest Equity Curve for Delisted US Stocks Trend Trading System (Log Scale):

Toronto Stock Exchange (TSX) Trend Trading Performance

The trend trading strategy applied to the Toronto Stock Exchange performs spectacularly well considering the system is so simple. The compound annual return was 16% with a maximum drawdown of 34% and CAR/MDD of 0.46. Considering how simple and unoptimized this trading system is, this shows that there is huge potential for profitable trend trading in Canadian stocks.

This is why in The Trader Success System we provide several great trading systems for the Toronto Stock Exchange. It is one of my favourite markets because of the strong trends that it’s stocks often experience.

Backtest Performance Statistics for Toronto Stock Exchange Trend Trading System:

• Annual Return % 16%
• Risk Adjusted Return % 17%
• system % drawdown -34%
• CAR/MaxDD  0.46
• Profit/Loss  15%
• Winners 48%
• Average Win / Average Loss 3.06

Backtest Equity Curve for Toronto Stock Exchange Trend Trading System (Log Scale):

Australian Stock Exchange (ASX) Trend Trading Performance

The trend trading strategy applied to the Australian Stock Exchange performs pretty respectably considering how simple the system is. The compound annual return was 11% with a maximum drawdown of 36% and CAR/MDD of 0.30.

You may notice that the equity curve seems to have two distinct phases, 1990 – 2007 and then 2007 – 2023. Trend trading on the ASX performed extremely well during the early phase, however since 2007 the rate of return from trend trading on the Australian Stock Exchange certainly seems to have dropped. I have seen this on other systems as well – it seems like there was a structural shift in the market around 2007 which changed the effectiveness of these systems.

Despite this shift, trend trading systems are still very profitable on the Australian Stock Exchange and I have a number of highly effective systems that use trend trading which are included in The Trader Success System.

Backtest Performance Statistics for Australian Stock Exchange Trend Trading System:

• Annual Return % 11%
• Risk Adjusted Return % 12%
• system % drawdown -36%
• CAR/MaxDD  0.30
• Profit/Loss 13%
• Winners 42%
• Average Win / Average Loss 3.20

Backtest Equity Curve for Australian Stock Exchange Trend Trading System (Log Scale):

Hong Kong Stock Exchange (HKSE) Trend Trading Performance

If you have watched some of my YouTube videos then you are probably aware that I am a big fan of the Hong Kong Stock Exchange as a source of diversification for my trading. The reason I like the HKEX is that it tends to have a low correlation with the other markets I trade like US, ASX and TSX.

The trend trading strategy applied to the Hong Kong Stock Exchange at face value seems to perform well with a compound annual return of 14%, but the maximum drawdown is extremely high at 69% and closer inspection of the equity curve certainly looks like something has changed since the peak in around 2018.

With my own trading I do not trade with long term trend following in Hong Kong because I have found a swing trading timeframe and strategy to perform much better. Based on this equity curve I am kind of glad this has been my approach because trend trading in Hong Kong could be in trouble.

Regardless of the prospects for trend trading, I do include a highly profitable and stable swing trading system for the Hong Kong market in The Trader Success System which I use to get some excellent performance and diversification in my own portfolio.

Backtest Performance Statistics for Hong Kong Stock Exchange Trend Trading System:

• Annual Return % 14%
• Risk Adjusted Return % 18%
• system % drawdown -69%
• CAR/MaxDD  0.21
• Profit/Loss % 9%
• Winners 39%
• Average Win / Average Loss 2.81

Backtest Equity Curve for Hong Kong Stock Exchange Trend Trading System (Log Scale):

Shanghai Stock Exchange Trend Trading Performance

Broad based trend trading in the Shanghai stock exchange does not perform well at all. The backtest showed a compound annual return of 2% and a maximum system drawdown of 68%. With numbers like this I am not even going to investigate further. Of course other trading strategies may be profitable, but trend trading does not look promising on the Shanghai Stock Exchange at all.

Backtest Performance Statistics for Shanghai Stock Exchange Trend Trading System:

• Annual Return % 2%
• Risk Adjusted Return % 2%
• system % drawdown -68%
• CAR/MaxDD  03
• Profit/Loss % 3%
• Winners 32%
• Average Win / Average Loss 2.70

Backtest Equity Curve for Shanghai Stock Exchange Trend Trading System (Log Scale):

Philippines Stock Exchange Trend Trading Performance

There may be some good potential for long term trend following in the Philippines Stock Exchange. The compound annual return has not been great at just 5%, however there are long periods where the PSE has gone nowhere. For example, from it’s peak in 1997 before the Asian Financial Crisis, the PSE Composite Index did not reach new highs until 2007 – shortly before the Global Financial Crisis. In 2008 the Philippines Stock Exchange suffered a significant drop just like most markets around the world.

However, while the performance long term has been lacklustre, when the Philippines Stock Exchange is trending well, such as in the period from 2023 – 2015 the returns were outstanding. If you were able to filter out the periods where the PSE Composite was sideways volatile or in a down trend with a market regime filter then the Philippines may indeed be a very profitable addition to a global trend trading portfolio.

Backtest Performance Statistics for Philippines Stock Exchange Trend Trading System:

• Annual Return % 5%
• Risk Adjusted Return % 12%
• system % drawdown -29%
• CAR/MaxDD  0.16
• Profit/Loss % 10%
• Winners 42%
• Average Win / Average Loss 2.83

Backtest Equity Curve for Philippines Stock Exchange Trend Trading System (Log Scale):

Bursa Malaysia Stock Exchange Trend Trading Performance

Our trend trading system applied to stocks on Bursa Malaysia generated a compound annual return of 7% with a maximum historical drawdown of 55%. This certainly does not fill me with excitement, however when you inspect the equity curve you can see that these gains were made in a fairly stead fashion over the entire backtest period. The bear and sideways markets in Malaysian stocks from 1993 – 2004 certainly reduced the returns our system generated, however with a good market regime filter these could be eliminated and the capital used elsewhere resulting in a very nice looking equity curve (See the second portfolio equity curve).

Backtest Performance Statistics for Bursa Malaysia Stock Exchange Trend Trading System:

• Annual Return % 7%
• Risk Adjusted Return % 10%
• system % drawdown -55%
• CAR/MaxDD  0.12
• Profit/Loss % 8%
• Winners 41%
• Average Win / Average Loss  2.57

Equity Curve – Bursa Malaysia Stock Exchange Trend Trading