I caught this criticism of trend following recently:
“Not only is trend following invalid statistically but, looking at the bigger picture, it has to be invalid logically without even running your unusual tests. If wealth distribution is to remain in the range of 20 to 80, trend following cannot exist. In other words, if the majority followed the trend (hence the concept of trends), and if trend following is in fact profitable, the majority will become rich and the 20-80 distribution will collapse…So in brief, no – trends do not exists and can not exist either statistically or logically, with the exception of the forever upward drift of population and general markets with some curves steeper than others, those of the countries with the extra weapon called land and immigration.”
I am assuming this guy would argue that every dollar ever made by a trend following trader was just dumb luck? Don’t the performance numbers mean something to a guy like this? Of course, trend following is really about answering these 5 questions:
* How do you determine what market to buy or sell at any time?
* How much of a market do you buy or sell at any time?
* How do you determine when you buy or sell a market?
* How do you determine when you get out of a losing position?
* How do you determine when you get out of a winning position?
At the end of the day everyone needs a trend to make money, but the five questions are where the rubber meets the road.