Hello Michael. I’m too new (I’m only 65) to offer advice. Give me a year. Seriously, I’m about halfway through the Tom Basso podcast. VERY helpful as you and he identify the order of importance of things to prioritize. I am a Nervous Nellie when it comes to trading, so I’m at a disadvantage here—I don’t know yet if my temperament is malleable enough to adjust to the opposite end of the patience spectrum; but money management? I can learn and do. I’ve been practicing pieces of it since I learned about options a couple years ago—that’s just where I heard about it first in terms of choosing an initial position size and setting stops based on volatility. I’m still backwards, though on when to add to winning positions. I also don’t hedge well at all.
Honestly, I’ve tried to maximize rate of growth rather than optimize ABSOLUTE return, a VERY different game—my success is limited at best, and it requires a lot of “seat time”. Part of my lack of success is the time lost ”adjusting” it—lately, to increase simplicity. But, it’s also a psychological fit, so it’s hard to walk away from, and I need to for reasons of physical and mental health.
I’ve also gotten to Part III of your book Trend Following. It’s good to see an exemplar on how to improve myself in managing my trading account’s balances. It is indeed very hard to watch price and to tune out the noise, but my CNBC watching is down 95% in the last two months, having already decided it was costing me time to regain my fitness, work on brain retention, and being a good husband. It also added anxiety to my mental state during the trading day and loaded me up with conflicting information.
Do I understand correctly that you don’t trade individual stocks, but rather, trade broader asset classes? If so, is it because it’s hard to hedge against specific stock risk? To this point in the book, there have been charts and tables illustrating how balances grow using trend following, but I missed it if there were illustrations of some stock charts that would illustrate “how a trend follower trades a stock”. Tying in the podcast, the point that picking the asset is lowest in importance of the five things to focus on, so it raised the question in my mind. Like I say, though, I’m only halfway through the book.
Setting stops is problematic for me. The one that makes the most sense to me for holding periods that Trend Trading requires is [name] and [name] as the basis for setting trailing stops and risk-weighted portfolio balancing. I’m a math guy, albeit in [name], but my working knowledge of stats is decent enough to have taught it a few times at various levels of college and with different balances of practical vs theoretical goals, depending on the course goals. All my prior attempts at Trailing stops were a bit ad hoc, or were more suitable for short-term trading.
If an asset trades on a stock exchange, I can play. I don’t have the courage to branch out to futures at this point, nor sufficient free cash to commit to learning them. ETF’s for select commodities and currencies are doable.
Thanks for the raft of resources in this email I’m replying to.
You are welcome.
Big picture: You can trade most markets as a trend follower, but you have to consider correlations or your risk management blows up. More in a private response to follow.