The Ever-Changing Markets Argument

Occasionally, someone trying to promote something or start a debate will argue that trend following rules must always change due to changing market conditions. This is nonsense. It is a specious argument. Trend following has always adapted to change. The root of the strategy is based on responding to change. I recall a conversation with Bill Dunn recently. While not asking about his techniques in this particular conversation he proffered that his basic system rules have not changed since 1974. That’s because Dunn, like many others, developed a system in 1974 that by design has responded to changing market conditions. That’s trend following.

6 thoughts on “The Ever-Changing Markets Argument

  1. Nothing is perfect and there is always a need to adapt to changing realities. Maybe that´s the reason why Dunn opened new funds in 2006 while his longest running fund the World Monetary and Agriculture program was experiencing an unprecedented draw down, which by the way is not over yet and lasting nearly seven years now.

  2. How much is rules change though?
    For example, Turtle trading rules seem to be completely static (based on dynamic parameters such as ATR) but even Dunn adapts his rules paramaters every year and changes which markets he trades based on how they change:

    “The World Monetary program currently trades 13 markets: four currencies, gold, crude oil, T-bonds, Eurodollars, gilts, sterling, bunds, the FT-SE 100 and the S&P 500. Back testing 10 to 12 years (each year has equal weighting), Dunn annually adjusts the parameters of trading signals and each market’s weighting. In February – just as the grains were about to take off – he dumped the entire grain sector. But Dunn has no regrets.”

    I wonder whether a truly “static” set of trend-following rules can be succesful or whether they need to be played with/amended to stay ahead of the curve?..

  3. I recently finished the Market Wizards CDs – interviews with top traders. It appears that most of the interviews were conducted sometime around 1988. It was interesting to note that several of the stellar traders being interviewed dissed trend following calling for it’s soon demise. Obviously, they were wrong if you look at the results of the top trend followers since then.

  4. It always amazes me that people always question the merits of following a fixed set of rules.

    Here is a Zen-like paradox to think about: markets fluctuate and change against a trending changeless background.

    Fixed-rules are not purely logical nor can they be understood by experience alone.

    Coming up with a fixed-set of rules and being able to stick to them is a creative act.

  5. “It’s very difficult to keep the line between the past and the present, awfully difficult.” -Little Edie, in the film Grey Gardens

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