Give and Take

A reader, Jose Rodrigo, wrote me last night:

“Hello Michael, Let me say I really like your website and read it regularly. I subscribe to the trend following philosophy and I’m a trend follower myself, however I am also a person who seeks the truth. It seems you present some inaccuracies in your recent article and on your website. In your article you say (in quotes):

“You can’t be a trend follower and base your decisions on fundamental analysis.”

Actually you can. See Jim Rodgers, who is a long term trend follower and bases his decisions on fundamental and economic analysis. See also George Soros.”

I disagree. The technical trend following I write about in my book, the style specifically practiced by the men profiled and their performance data, is not fundamentally based. Trend following does not attempt to answer “why” questions, fundamental analysis does. Jim Rogers, who I like and admire, said this to me:

“I am not a trend follower as you probably know.”

Jose continued by quoting me again:

“The great trend followers trade objective methods.”

It depends on what you mean by “objective”.

I am clear about “objective” in my book. Very clear. Jose continued:

“Successful trend followers trade a system that is adapted, so to speak, to their individual and subjective tolerance to risk and reward.

I know – I state this. Jose continued:

“If it were an objective method, then all trend followers would choose one system: the one that produces the maximum profit.”

That’s not true. That logic doesn’t make sense to me. Once again, I have made the case why not all trend followers trade balls to the wall. Jose continued:

“Let me quote from ‘Market Wizards’: “Everyone says you get killed trying to pick tops and bottoms and you make all the money by catching the trends in the middle. Well, for twelve years, I have often been missing the meat in the middle, but I have caught a lot of tops and bottoms. If you are a trend follower trying to catch the profits in the middle of a move, you have to use very wide stops. I’m not comfortable doing that” and “Elliott Wave theory allows one to create incredibly favorable risk/reward opportunities. That is the same reason I attribute a lot of my success to the elliott wave approach.”

You have ignored all of the specific performance data in my book and latched onto one quote from Paul Tudor Jones. Direct access to Jones’ performance is not available so we are not able to compare his performance numbers to trend followers from a correlation stand point. Jose continued:

“Just because you and I can’t or won’t make money using the methods you criticize doesn’t mean no one can do it.”

Can you outline objectively what Elliott Wave actually is?

“I understand your business is trend following, and it doesn’t make sense to promote Elliott Wave on your website, but using quotes from a contratrend trader on your website doesn’t make sense either.”

Paul Tudor Jones has made the bulk of his money from big macro trends.