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Food for thought:

“What kind of risk are you willing to take to get this profitability? Consider whether you are willing to suffer the occasional large loss in return for consistent small profits. For example, risk arbitrage as a trading strategy has lots of small profitable trades but the size of the average winning trade is overshadowed by the size of the losing trade. Do you need to make modest profits but take little risk? Do you need to make huge profits but can afford to take sizable risks? I usually start interviews with potential clients by asking them how much risk they are willing to take. Can you afford a loss of 5%? How about 50%? Defining the amount of risk usually defines the type of system that is required. Don’t forget that it is very easy to acquire risk. One of the keys of profitable trading is controlling and managing the risk that is acquired. One of the key risk elements to look at is the risk of catastrophe. For example, it may be that two systems have identical returns but one has a higher risk of catastrophe. I remember in the early days of system trading how moving average crossover systems were all the rage. The basic concept is to buy the instrument when the, say, 10-day moving average of price crossed over the 40-day moving average of price, and short when the reverse occurs. In fact, this is a profitable system. But one of the problems is that moving averages are, by definition, behind the market. It is quite possible for an instrument to lose 90% of its value before the sell signal is triggered! Of course, it won’t happen very often, but the mere potential of this risk must be considered in the system selection process.”
Courtney Smith
Chairman, Courtney Smith & Co.

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How can you move forward immediately to Trend Following profits? My books and my Flagship Course and Systems are trusted options by clients in 70+ countries.

Also jump in:

• Trend Following Podcast Guests
• Frequently Asked Questions
• Performance
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Trend Following is for beginners, students and pros in all countries. This is not day trading 5-minute bars, prediction or analyzing fundamentals–it’s Trend Following.

Ed Seykota was recently asked in his forum:

“I am new to trend following and wish to ask you what your favorite chart is for determining a given market’s trend? Daily, Weekly, Yearly, Hourly?”

Ed responded:

“Hmmm…your list seems to lack scaling options for minute, second, and millisecond. If you want to go for the really high frequency stuff, you might try trading visible light, in the range of one cycle per 10-15 seconds. Trading gamma rays, at around one cycle per 10-20 seconds, requires a lot of expensive instrumentation, whereas you can trade visible light “by eye.” I don’t know of even one short-term trader, however, who claims to show a profit at these frequencies. In general, higher frequency trading succumbs to declining profit potential against non-declining transaction costs. You might consider trading a chart with a long enough time scale that transaction costs are a minor factor – something like a daily price chart, going back a year or two.”

I agree with Ed’s pithy wisdom, but he is not saying short term is impossible.

There do exist shorter term systematic traders who have done quite well (Toby Crabel (open range breakout), Jim Simons). They would agree with Ed that their style is hard. The shorter you go the more you need great execution, fantastic data and multiple systems. To be a great shorter term mechanical trader is a different animal than trend following, but it is a style that a select few have mastered.

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How can you move forward immediately to Trend Following profits? My books and my Flagship Course and Systems are trusted options by clients in 70+ countries.

Also jump in:

• Trend Following Podcast Guests
• Frequently Asked Questions
• Performance
• Research
• Markets to Trade
• Crisis Times
• Trading Technology
• About Us

Trend Following is for beginners, students and pros in all countries. This is not day trading 5-minute bars, prediction or analyzing fundamentals–it’s Trend Following.