Bill Dunn: Trend Following Trader

Bill Dunn is a trend follower. He never hesitates to swing for the home run because for Dunn, it can be all or nothing. His performance data is a clear, consistent, and dramatic demonstration of trend following.

Dunn is founder and chairman of Dunn Capital Management, Inc. He is one of the purest trend followers alive because he trades his trading system full throttle, aiming for huge returns. Dunn Capital has no defined target for an annual return (other than positive). There is nothing in Dunn Capitals risk management that precludes annual returns approaching 100 percent. There is no policy that if, for example, a Dunn program were to be up 50 percent by mid-year that the company would rest on its laurels, so to speak, and dial back trading for the rest of the calendar year. Further, it is not surprising to see Dunn down 20 percent or more every three or four years, and in some cases down 50 percent, but whatever the level of volatility, this independent, self-disciplined, long-term trend follower never deviates from his core strategy.

Dunn Early Years

Dunn grew up in Kansas City and Southern California. After graduating from high school, he served three years with the U.S. Marine Corps. In the ensuing years, he received a bachelor degree in engineering physics from the University of Kansas in 1960, and a doctorate in theoretical physics from Northwestern University. For the next two years, he held research and faculty positions at the University of California and Pomona College. He then worked for research organizations near Washington, D.C., developing and testing logistical and operational systems for the Department of Defense.

Bottom line: Dunn enjoyed the R&D side of things, but also understood the real worlds need for applications beyond the theoretical. The markets are his real world. Around the age of 35, Dunn got it. At the time, he was working out of his home in suburban Fairfax, Virginia. He came across a newsletter touting a commodity trading system, which almost sounded too good to be true. Upon testing it, that turned out to be the case [and he set about developing his new system]… Using daily data, Dunns system looked for big trends, as defined by a percentage of a price move from a recent low or high.

It traded each market three to five times a year, automatically reversing if the trend moved in the other direction. [Dunn determined] position size by risking 2 percent to 6 percent of equity under management on each trade (source: Jack Reerink, Dunn: Slow Reversal Pays Off.). Its not uncommon for long-term trend followers to have trades in place for well over a year, hence the term long.

If you want day trading insanity or the feeling of exhilaration in Las Vegas, Dunn is not the person you should choose as a trading role model. Following his computerized trading system, Dunn holds long- term positions in major trends typically trading only two to five times per year in each market. The original system was and still is a reversal system, whereby it is always in the market, either long or short.