Year: 2005

Feedback on “shorter-term” trends:

“Michael: I have read the older version of Trend Following and am working to apply the knowledge you conveyed so well in it. I am a definite believer in trend following and its benefits. With that being said, I would like to offer one piece of ‘information’ that I have acquired through reading a couple of dozens books on trading and my somewhat limited experience trading. For some reason, perhaps that I am 55 and my brain isn’t as fast as it used to be, I came away from reading your book with the following phrase in my mind: “Long-term trend following.” Admittedly, your book does not really use this phrase. You simply recommend ‘trend following.’ The reason I raise this issue is that, trend following does not, by definition, have a specific time frame inherent with in its’ ‘methodology.’ It does not have a defined length, or even an intoned length of trade. My mistake in interpreting ‘trend following’ as ‘long-term trend following’ caused me to stay in trades after a seemingly ‘short-term trend’ (meaning less than a few months) had run its course. Because I had the concept of ‘long-term trend following” in my mind, I was looking/expecting trades to last for many months and perhaps into years. While there are trends that will meet these criteria, there are many, profitable, ‘trend-following’ trades that last only a few days or a few weeks depending upon the future/stock that is being traded. Once I recognized this ‘long-term’ definition error in my thinking, I have been exiting some ‘trend-following’ trades more quickly than before, and have, as a result, often ‘saved’ substantial profit that I was previously letting slip away while I waited for the ‘long-term’ time period to pass. I share this with the hope that it might help others who might suffer from the same misconception that ‘trend following’ has some pre-defined aspect of time built into it. It doesn’t. Just follow the trend over the time period for which one’s analysis applies, and get out when that trend says it is done. And, of course, cut losses short. Thanks for sharing your knowledge with others. Sincerely, H. Richardson”

How do you determine the “time period for which one’s analysis applies”? The trend followers that I have written about and the trend following I describe is thought of as long-term trend following. That’s how they define themselves and their trading. There are the few super traders (i.e., Simons, Crabel) who can trade very short time frame trends with success, but the average trader has no shot in my opinion in so-called “shorter trends”. Shorter trends require much more in terms of execution and commission for success.

George Crapple of trend follower Millburn Ridgefield offered wisdom in a Barclay Group publication:

“A futures fund traditionally invests its underlying assets in Treasury securities, some of which are deposited as collateral or margin for futures and forward positions. These positions typically have a face value of three to seven times the net asset value of the fund as in the case of Millburn Ridgefield Corporation’s funds. The substitution of individual equities for a portion of the underlying Treasury bill asset base would reduce the non-correlation of managed futures with equities, unless the manager adopted a methodology of hedging the equity exposure in bear markets. Regardless of the level of substitution of equities for Treasury bills, the leverage in a futures portfolio will still make the portfolio substantially managed futures, and the arguments for including such a strategy in a total portfolio remain intact. Since investors often look at each of their investments on a stand alone basis as well as on the basis of what they contribute to an overall portfolio, the inclusion of some equities in a futures portfolio can enhance rate of return and, in many situations, reduce volatility due to the non-correlation of the strategies.”

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Trend Following is for beginners, students and pros in all countries. This is not day trading 5-minute bars, prediction or analyzing fundamentals–it’s Trend Following.

I have had the opportunity over the years to spend time with Peter Borish. He is truly one of the straight-shooters on Wall Street. A comment from his firm’s marketing materials:

“We don’t have a bias. In our view, the market is always right. So we remain flexible. Our approach is to analyze the data, pour over the stats, and call the plays to Joe [Joe Niciforo, Chairman of Twinfields Capital] – but it’s Joe who makes the final trading decision in light of his experience and read of the market. Unlike chess, in trading there’s no one right move. There’s an element of uncertainty. In that way trading is more like backgammon – highly unpredictable. But notice one thing: the same top players always compete in the big tournaments. That speaks to experience. Models are crucial to what we do as traders. We couldn’t work without them. But if you don’t have an experienced person making decisions in what is often an uncertain environment, you’ll lose. Joe represents experience and decisiveness in a cool head. He has the maturity to know when to follow our themes and when to ignore our calls and follow his instincts.”
Peter Borish

I spoke with a gentleman today originally profiled in Jack Schwager’s Market Wizards book (not Ed Seykota for those guessing). He wanted to talk about risk management. He made the point that as long as you have “great risk management” your entries could be “random”. His firm, for example, makes money from random entries. For all those “technical traders” out there relying on the next great “predictive technical indicator”, his point should cause pause.

How can you move forward immediately to Trend Following profits? My books and my Flagship Course and Systems are trusted options by clients in 70+ countries.

Also jump in:

• Trend Following Podcast Guests
• Frequently Asked Questions
• Performance
• Research
• Markets to Trade
• Crisis Times
• Trading Technology
• About Us

Trend Following is for beginners, students and pros in all countries. This is not day trading 5-minute bars, prediction or analyzing fundamentals–it’s Trend Following.