I heard Michael Covel’s excellent interview on Jim Puplava’s radio program. I have also read TurtleTrader and Trend Following books. I am very interested in Trend Following but I have a question that has been nagging me. My question is how do trend following traders gain an edge against the large trading houses with black boxes, proprietary trading, and an army of really technical quants? If trend following is a set of rules and discipline to follow those rules, would not the big trading houses have similar rules and discipline and thus beat the TurtleTrader at the game? Thanks, Lance
Most technical traders at big investment banks do not practice trend following. They practice very short term high frequency trading. Most of those houses are still centered around the concept of arbitrage and or long only fundamental investing. Those are some massive reasons why they don’t beat trend followers. Further, trend following is not something that is “beat” since the real competitors are mutual funds. As long as the vast majority of investors sit like sedated sheep in a Fidelity mutual fund with no plan to make money except in up markets — trend followers will ALWAYS make money. And lastly, human nature is human nature. It creates bubbles, and more bubbles, and then sees those bubbles popped — year after year — decade after decade. If what I mention ever stops — then maybe trend following stops.