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.