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You might like my 2017 epic release: Trend Following: How to Make a Fortune in Bull, Bear and Black Swan Markets (Fifth Edition). Revised and extended with twice as much content.

43 thoughts on “Trend Following…Stay Tuned

  1. Don’t know about your system, but I’m getting hammered so far. Other than a few great trades that are being reinforced (short EUR, long Schatz), all others are being reversed (long equities in general, long CAD, long AUD)… Not complaining though 🙂

  2. Not good!! You know an uncontrolled ‘bleed’ is coming. Bend over and take some more.

  3. i suppose it was too volatile a day to declare any kind of winners/losers. I was sitting on paper profits of about 20K when the market hit the intraday low but i was busy at work and by the time i came back most of it was gone!

  4. Andre i get what your saying. I was long cad and aud too. I also had a long options position on a lot of tech stocks that i like. But what seperates you here from the rest of everyone elese is your risk managment or whatever you want to call it. For example, 10% of my net worth now is long options long term. Now i have 4.5% of the options bought. Today is a perfect oppourtuinity to add to that position. Just play it from one side and you wont feel confused. This is perfect now because people are very irrational. Lots of trends are going against each other now and people dont know whats going on. But i think we are on the right track being on the long side for now. Just make sure your ready if it goes the other way and bet right.

  5. The DOW corrected down 10% on that 15 minute plunge. I bought a few leaps in the last 30 minutes. I didn’t buy them sooner because the spreads were out of wack.
    I’ll be searching for more tomorrow. Hopefully, we drop another 1000-1500.

  6. Trend following positions I had today…were not initiated today. No one could predict today.

  7. well, I had at least two stops trigger today (that somewhat recovered) due to the ‘glitch’. So buying/holding may have spared some extra trades

  8. Ken there are many types of trading systems you can make that have trend following as there main philosophy. I am not going to enter a long term position all at once. Buying on dips gives me a better average price. Dont get me wrong, when prices move in my favor and then dip again, i dont make it a point to buy at prices less than when i first started buying it. As long as there is a dip i am buying, even if prices are higher than when i first got it. This is one of my startegies for long-term options.
    You might think this is dumb, but the 10% of my portofilio that i put towards leap options i could care less about. if i lose it at the end of the year i lose it. Not a big deal. But if prices start moving in my favor, i know i am going to make 500 to 1000% on those options, giving me a nice return on my portfolio as a whole

  9. Ken/Nader, thanks for the tips. But whatever your convictions are, test it first, and systematize it. If you feel like buying every “dip” on your system and had tested it before, fine. If you feel like buying only THIS dip then you should be very careful. Good luck! Hope gold, stocks, cad, aud goes to the moon and euro goes to zero

  10. Hey andre i hope everything you said comes true but its not just about buying this dip. Its about having diffrent systems(timeframes and volatility)with good risk managment. Everything is planned for. Even days like yesterday.

  11. Good. My system is very simple, long term in nature, with several criteria for stops. I’ve tested systems for years and once I reached a certain reward/risk ratio I didn’t find any improvement with mixing systems/parameters/time-frames, addin pyramiding schemes, etc. But I repeat, that is the case if you already get a GOOD system. Maybe I should buy one of Covel’s courses? 😉

  12. Maybe you should but a lot of the info you need he already provides on this site for free

  13. An email from one of my subscribers:

    Allan,
    I just finished Ch. 4 of Michael Covel’s Trend Following book. I know you have read this book, but I wanted to share something since it is fresh on my mind. One of the takeaways I had from that chapter is that trend followers aren’t surprised by market anomalies or strong down/up turns because they are generally already on that side of the market before it happens. He supported that claim with multiple examples of market downturns and showed how the trend follower would already be positioned on that side of the market due to other indications of an impending trend.

  14. However, last night trend followers took a beat as well… don’t tell me you think these strategies are made for such havoc… be real! 🙂

  15. Rob, not accurate. Nothing new that when the world equities go wildly south, it is one of the times trend followers do well. Not making some one hour or one day prognostication.

  16. Price followers can be beat by the regulator when trades are “busted” (cancelled by regulator). Thursday’s price action was useful nevertheless. We now know that Nasdaq will cancel trades if prices change more than 60%:

    http://media.globenewswire.com/cache/6948/file/8211.htm

    So, now we know it is wrong to set OCO (one cancels other) exit orders bracketed at minprice==mintick (eg: BUY LIMIT 0.01 OCO BUY STOP X, where X is the typical trend stop loss). We now know that minimum and maximum are governed by an arbitrary 60% rule imposed by the exchange so the minprice bracket OCO should be set at 59% of current price for those trades.

    In an ideal world we would have these rules in advance rather than learning about them after they are made up on the fly. For the SEC’s part, at least the new 2010 10% rule is published. Personally though, if there is a 10% down rule, there ought to be a 10% up rule as well. But, by reason of the sheeple, nobody will complain if prices suddenly increase by 10%. That’s the world we live in – stupid rules for stupid sheeple.

  17. Most long term trendfollowers will have been long. Check their performance during Feb 2007 (the China mini crash, -4% Dow). The big trend followers posted -5 to -8% months. Nothing special but rapid trend reversal is never good for TF.

  18. Honestly, no matter what kind of system you’re trading, there’s no way for you to make money on yesterday’s move. Period. There is no trend (based on 50 days, 20 days, 50 weeks, etc.) that would have made you be on the right side. Now, if the trend continues, that’s another story. What can be happening is you’re locking profits and exiting, but don’t tell your system is making huge money from it.

  19. FTC Futures Fund down -4.06% MTD for the month of May, indicated closed of business yesterday 6th of May. Probably a decent indicator for most longer term TF funds.

  20. Everybody loses in the market even trendfollowers. Losers are your expenses and its part of running the business. But days like yesterday are the ultimate test for your system. I am not saying i made money. I am saying a day like yesterday shouldn’t change what you are doing from day to day. I was prepared. And sometimes being prepared means also being prepared to lose money.

  21. Adding to losing positions, trading so that you wont feel confused, trying to spare extra trades, buying based on what you feel like trading, etc. is not trend following…

  22. Trend following is a philosophy. Life is all about trends. How i exploit those trends is based on me. there is no right or wrong way to follow a trend. As long as i beleive in the philosophy thats all that matters.

  23. US Equity markets have given a sell signal, it’s really that simple. Turtles go short or buy puts…

  24. Allan Harris says: “One of the takeaways I had from that chapter is that trend followers aren’t surprised by market anomalies or strong down/up turns because they are generally already on that side of the market before it happens.”

    Staying on the right side of markets is really not all that complicated. If you consistently and systematically buy strength and sell weakness you’ll find yourself on the right side. Most of the strongest stocks in the stock market started to break their up trends in April! Thursdays decline is simply a confirmation of that. I’m constantly amazed how very few people buy the strongest issues and sell the weakest ones.

  25. Good discussion everyone. My systems did okay yesterday. I was long QLD and EPP with a monthly system, was stopped out at prices above current levels. I only trade 25% of my accounts systematically, for the rest I have permanent positions in long bonds, cash, gold so those all did great to balance out the equity losses.

    A weekly system was long small cap growth stocks, and was stopped out. Second weekly system was on the right side of the trend: short the Euro (EUO), and that made money obviously. So I was mostly not on the right side of the trend, but with diversification of systems and approaches as well as sensible stops I ended up with a flat day instead of down a lot.

    I’m sure many here are more experienced than me, but maybe this description will help the people who are worried that trend following can lead you off a cliff if you get caught on the wrong side of a move. With a sample size of one; I found I didn’t need any discretionary trades to sail through just fine.

  26. Andre, it was not possible to make money from the day the dow plunged on trend following? I mean, you assume everyone just uses the DOW or S&P ?

    What about other asset classes where signals were issued days before this? Euro, EURJPY, GBPJPY, bonds, and other commodities?

    Currencies especially made a killing that week, with enphasis on may 6th !

  27. Salvador, of course it’s possible to make money. My system like a bunch of others don’t trade only Dow or S&Ps, but a lot of currencies, bonds, commodities. What I’m saying is, it was a quick REVERSAL in almost all of these markets. So even if your system was very short term in nature you couldn’t have catched this down “trend”. Because it was NOT a trend, it was a sharp reversal of what markets had been doing the last few weeks. So all the talk about making money with TF in this crash is just bullsh*t. Unless you used some intraday system, or maybe a 3 to 5 days lookback period. But that would be so short term I wouldn’t consider a TF.

  28. It’s not bs. You could have made money simply shorting the S&P when it broke it’s 20-day low. You would still be sitting on a proft today despite the huge artificially manipulated rally.

  29. Ok Ken, good example, but you need to decide if we’re talking about a portfolio of stocks/bonds/currencies/commodities or some of the trades. I did made a lot of money on long bonds, per example, but for the markets in general, all I saw was a sharp reversal in most, there’s no way you made money overall. And all trend-following funds are showing the same.

  30. I was on the right side of 7 of 9 trades (78%) two days before the “crash” with my longer term positions. My account value was +60% at one point… dropped back to +32% after the retracement. Most of the 7 trades are still open and I’m currently +30%.

    Add in that I pulled profit out of the markets on lower time frames by day trading lower time frames on the same vehicles and I’ve had the best month since Oct 2008.

    Tell me again how trend following doesn’t work…

  31. the trend has been downward for currencies (up USD) & up for Gold for quite some time. Strange pair just as last year’s up USD & up SPX pair. So much for negative correlation. Raising stops and having been short worked just fine.

  32. Jim, please come on I trade trend following just like so many others, the purpose is not to say it doesn’t work! Either you are talking about very different trends or different time frames. Last week, from May 3rd to May 10th I’m talking about. AHL is down 2.76% this week, Winton Global Alpha (which publishes daily) was also down 2,57% during the same period. Overall, they were positioned for “bullish” positions. Short USD vs CAD, vs AUD, long Equities, long Oil, Short Nat Gas… all of this reversed this week. If you happened to have some trades that went up, good for you, but again, OVERALL – I’m talking about 50 or more markets, It was a bad week, not a good example of TF “profits”. Does that mean I don’t like TF? Wrong! I love it! PS: As we speak – May 13th, Winton recovered, my portfolio recovered a lot, and AHL will probably recovered, let’s see its NAV friday.

  33. Everyone talks about capital preservation but few seem to follow it…

    If you had reversed your shorts in March 2009 using basic TF, you would have made a fortune into July…Then a correction in which you were stopped out. Overall gains March – July at least 50%. Then start over again in August to October. Stopped out again…overall gain now 100%. Then start over again to December…if you’re long gold, you’re stopped out. Another 25% gain. Then sideways market with thin volume so no trades until after February correction. Then back in until April when airy markets become obvious. Then, stopped out on drastic decline last week with another 50% gain.

    I don’t understand how people are down 30 – 40% if they follow TF??? You should be up over 100% in the last year if you have a resource-focused portfolio, which it should be, based on simple sector trend analysis.

    Read Michael’s books!!!…use a hi-liter!!!

  34. Andre Says: “Jim, please come on I trade trend following just like so many others … Either you are talking about very different trends or different time frames”.

    Andre, I’m talking about MY trading, the thing that only I am 100% qualified to discuss.

    As far as time frames are concerned I told you right in the post I trade BOTH long term (Daily chart) and short term (15 minute charts) so no, time frames have nothing to do with it. I didn’t mention which markets or vehicles the trades were taken on… why do you feel the need to throw a bunch of them at me as examples of how it couldn’t have worked? It WASN’T a bad week for ALL markets or ALL vehicles for a trend follower… that’s just your perception based on your personal experience; you need to learn the difference between that and reality/facts.

    And finally the most important thing… if you read into my post as some sort of attack upon you or your method then maybe you should take some time and investigate why you feel this way, BECAUSE IT WASN’T AIMED AT YOU PERSONALLY. You may have some kind of fear that you’re unaware of that is affecting you (and possibly your trading) and causing you to become defensive. Also, after going back and reading your posts in particular I would also recommend that you learn to control the thought process that has you saying things like “Honestly, no matter what kind of system you’re trading, there’s no way for you to make money on yesterday’s move. Period.” If I had read that sentence before I originally posted I might have addressed you directly. I personally did make money trading that day… I guess that makes me the Black Swan (even though I know I’m not).

    (BTW… my long term positions I referenced in the previous posts are still up 39% (68% if you count a gold trade I’ve been in since March). You can choose to believe whatever you want, the only thing I need to look at is my equity balance.)

    Best of luck in your trading.

  35. Jim, please don’t come with psychological crap or guessing who I am, cause I don’t know about you either. And don’t misinterpret me, because I wasn’t saying that TF wasn’t working on all markets or all vehicles, what I was saying is that, as a whole, despite some markets making money that week, for a diversified portfolio they didn’t. AHL or Winton Capital for sure didn’t lost on all trades they’ve had on, despite they posting losses that week.
    To make it clearer, I’m talking about macro/futures markets. Of course there are a lot of guys here who trade TF on only a bunch of screened stocks, they could have made money.
    For the typical strategy and big diversified futures Trend Followers – the full list that Covel talks about (JWH, Winton, AHL, Dunn, etc), 90% of them lost money that week, it’s a fact. Because they trade long term. Year, or more than year trends. No intraday stops (they manage billions). If long term for you is a daily chart and short term is a 15min chart then we’re at a completely different universe, and your portfolio has zero or inverse correlation to the typical TF that Covel mentions, and there’s no point in this conversation, because we’re both talking about different things.

  36. Andre-

    Either take a reading comprehension course or at least try reading the words in this particular post without twisting them around to fit your opinion of what I’m saying like you did after reading my last two posts.

    1. I wasn’t guessing about anything, just offering some advice about exactly what you said in YOUR post. The guessing is coming from your end. You made points and stated opinions about things I never gave you information about. You also ignored the facts that I did give you because they didn’t fit your opinion.

    2. If you want to argue point #1 go back and read my original post. The post wasn’t aimed at you specifically (even though you felt the need to react to it) and it stated quite clearly that the post was about my longer term trading, not day trading… the day trading info was just offered as a “cherry” on top of the icing. By the way, many of the trades I take on a Daily chart are held for months… some are even held longer than a year… I’d like to know how this isn’t considered long term trading. Once again you are making assumptions and jumping to incorrect conclusions based on nothing other than the mention of a time frame.

    3. You may want to focus on your own trading and stop worrying about mine, or AHL’s or Winton Capital’s or anyone else’s (unless you’re working for them)… and if you really think what I said to you is “psychological crap” then you may also want to take some time to study said “crap”. I think it will do wonders for your trading, not to mention your ability to communicate effectively. Or you can just continue operating in your fishbowl, ignoring anything that doesn’t fit your opinion.

  37. Fine, Jim, fine. I’m not turning Covel’s site into elitetrader, he deserves better. Congratulations to your trading system.

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