Some feedback from a reader explaining why trend following is not wise today:
“The problem is you will spend a lot of time and effort just breaking even on what are presently very stagnant markets. While it is true one might make 50% or more by joining the short sellers every time the markets panic, if one is uncomfortable with the added risks of short selling, one must find at least one home run long position once in awhile, e.g. 50%, 100%, etc. [I pick 100% just as a round number large enough to overcome the retarding effect of position sizing on that rare home run you might get by trying to trend follow in the chop.] What I am suggesting is that markets today are so correlated and so stagnant that you cannot find any long investment that will stand out far enough to get ahead of all the losing trades one has to endure in trend following this sort of market. Markets are very choppy and increasingly correlated because of globalized trading. “Low opportunity” as you say. I guess this is my point and criticism of trend following as a useful trading tactic at this time.”
Thanks for the feedback. Comments:
1. Which ‘markets’ do you mean?
2. How do you define ‘at this time’?
3. How do you explain the success seen here: www.jwh.com, www.wintoncapital.com, www.grahamcapital.com, www.chesapeakecapital.com, etc.? Are their results just ‘luck’?