Markets: They Trend, They Flow, They Surprise

Chapter taken from “Trend Commandments”:

Markets go up, down, and sideways. They trend. They flow. They surprise. Have markets changed? Not only have markets changed, they will continue to change. Check your history books. If you have a valid market philosophy, learning to accept that change and flow with it is your greatest asset. No matter how ridiculous market moves appear at the beginning, and no matter how extended or irrational they seem at the end, following trends is the rational choice in a chaotic, changing world.

That thinking leaves trend followers as generalists when it comes to their trading strategy and that’s not easy to accept for many. The dominant trend within universities is ever-narrower specialization. A higher premium is placed on deep knowledge within a single field (read: fundamental expertise in one market), versus broad wisdom across multiple fronts.

For example, one trend following practitioner started trading trends in 1974—making hundreds of millions in profits and perhaps billions for clients. The major strategic elements of his trend following trading systems have never changed. He was blunt: “The markets are just the markets. I know that is unusual sounding.”

Occasionally, someone trying to promote something or start a debate will argue that trend following has to change due to changing market conditions. Specious. The root of trend following is based on responding to change. It is designed to be adaptable.

Does that mean every systematic trend trader will take the risk of shooting only for huge returns? No. Does that mean every trend trader will capture a trend in the exact same way? No. The trend following way has many practitioners and many recipes. However, just as there are thousands of car models, they are still cars.

Think about my words.

You might like my 2017 epic release: Trend Following: How to Make a Fortune in Bull, Bear and Black Swan Markets (Fifth Edition). Revised and extended with twice as much content. Out April 24th 2017.