The biggest challenge I have faced is: starting to trade in the first place. I lack confidence in my ability to value a market which in turn means that I end up sitting on the side-lines. Trend following is appealing to me as I don’t need to be able to value a market – I need to be able to identify a trend. Valuations are as much art as they are science whereas identifying a trend relies on cold hard facts – price action. The systematic approach required to be able to identify and trade these trends is what appeals to me.
You don’t ID trends. You need:
• Exact rules for selecting your tracking portfolio.
• Exact rules for entering your trades at the right time.
• Exact rules for exiting your trades with a loss.
• Exact rules for exiting your trades with a profit.
• Exact rules for how much money to bet on each trade.