21 thoughts on “Making Trend Following Sexy

  1. well – I got it now!
    Thanks for that as there is not much good info on Dave Harding on the net.

    re-reading your book again at the moment (first time I am reading the new edition) and it’s such a great boost for motivation (and nice read also)

  2. mmmh, just read that…

    They describe Harding as looking for “predictable markets”

    and Harding seems to imply that markets have changed…

    Today’s market is
    much smarter and more sophisticated than it was
    when he was staring at charts drawn on graph paper
    years ago. […]
    This puts it ahead of the herd-following fund managers and those who use a basic trend-following system that may still deliver modest returns”

    wonder what you think on that, Michael?

    I am really starting to get “sold” on the “philosophy” of trend following (and by trend followers performance) but there is always this nagging doubt that it will start to fail when I start trading such system..

  3. “Winton differentiates itself from its peers through
    an emphasis on statistical research. This puts it
    ahead of the herd-following fund managers and
    those who use a basic trend-following system that
    may still deliver modest returns”

    Not sure how sexy that makes Trend Following sound.

  4. Harding is one of the best, and he certainly works at his craft at the highest levels of achievement, but he is a trend follower. That fact alone is inspiring if you are open to accepting it.

  5. In terms of “prediction” refresh with my description of reaction v. prediction in my book Trend Following.

  6. I believe in Trend Following 100%. It’s impossible not to, with all the statistical proof that it works -if you use a sound system of course. In fact, I would go on to ask what is the alternative? Sure, there are plenty of sound but unscaleable day trading strategies that are non trend following (in fact, I would suggest that trend following is not suitable for day trading); but in the long term what strategy can boast such evidence of success? Which leads me on to a question I have for you. Why do trend following funds manage small amounts of money compared to their non trend following counterparts? Is this due to scalability or just plain ignorance of fund clients?

  7. 19% long term on $11B US in capital. Sounds pretty good. I wonder if the size of his fund is why he’s gotten more sophisticated. I think it would be very difficult to get in and out of markets with this much $$ under management. I wonder if this is what caused him to make is comment about simple trend following systems. Individual traders make a lot higher returns on trend following systems with likely more volatility. I know that Larry Hite had 5 straight years of triple-digit returns in the 1980’s in the fund he managed at the time.

    The “formula art” in the PDF looks ominously like the cover of the LTCM brochure…

  8. Ken I like your research, very nice. The debate was about trend following and EMH having certain similarities, I still stand by that. And like I said above, there are plenty of sound but unscaleabe day trading strategies that work, and I do one of them. It would not be possible to manage a fund based on this strategy due to the market impact you would have which is a big problem when you are day trading. Therefore, trend following seems like the only replicable strategy for non day traders. And replicable is the key work here. If you have a talent for picking tops and bottoms or finding the next stock that will go exponential then trend following is irrelevant. But the special thing about trend following is that you can quantify more or less everything so success is a matter of discipline.

  9. “If you have a talent for picking tops and bottoms or finding the next stock that will go exponential then trend following is irrelevant.”

    I am not so sure this “talent” really exists.

  10. Yes, I half agree with Michael’s point. In the long run this “talent” does not exist. Yet, in every field there are short-term shooting stars that fade into the night, never to be heard from again. They’re usually positive-thinking types. Consistency and risk control is not their top priority. Usually, whether they’re aware of it or not, their stated goal is finding that “edge”, whatever it might be, and making it. The good intuitive types hit their mark then with time give it all back and disappear(either they bleed or blow-out). Over the years I have learned quite a lot from such people.

  11. p.s. My feeling is that at any given point in time there is a larger pool of such near sighted traders than the mature long-term, consistency, and process oriented type of traders.

  12. Trend followers and systems traders are not the only successful traders in the world. There are discretionary traders that do very well, so talent definitely exists to an extent.

  13. @ Jeff re comment 12:
    very good point about needing to be sophisticated when managing large funds. It is clearly important and a good thing is that being a small fish in this big pond (ie retail investor) is actually an advantage.

    Illustrated in this article of Automated Trader magazine covering Aspect Capital (one of the big 3 London-based CTA / Trend Followers – along with Winton and MAN-AHL):


    They have alpha generation research team of 20 people (I would assume trend following strats mostly) and 3 people solely working on algo/execution models

  14. I use a statistical trend following system that doesnt use moving averages or any technical indicator.The main focus is the price action-There are many many trend following systems-some better than others.
    The methodology works.

  15. I like the reference to alchemy. There is a parallel in the trading world in the popular belief that there exists some magic formula or indicator that is a secret konow to only a few, which, if discovered, will lead to immense wealth.

    Now I have to get back to work. I’m so close. I’m sure that if I just tweak a certain parameter and add one more filter …

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