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Hello Michael, I’m reading your fifth edition of Trend Following. I’m reading the interviews, the one with Ewan Kirk. These people are talking as if trend following was discovered by computer programmers in the 1980s. I’ve been trading for fifty two years and I’m here to tell you that this is just not true. Richard D. Wyckoff and Jesse L. Livermore were trend followers almost one hundred years ago. The big money is in the big swing. –Jesse L. Livermore. The most important thing you can know about the market is it’s trend. Richard D. Wyckkoff in his course stock market science and technique first published in 1932. I bought a Kroll wilder long term trading system. As a trading system, it was worthless. It was a reversal system that kept you in the market all the time either long or short. In the trading ranges it got cut to bits. It didn’t even use the correct data. It used something called a perpetual contract. Whatever that is … I once went to a seminar in Chicago with Ed Seykota. I thought Seykota was going to teach me something about trading commodities. Instead, he taught me some deep breathing exercises that he called Zen on steroids. At dinner that night, he took a chart out of his pocket and showed it to me. This is the kind of chart I like, he said. As a Wyckoff student, I recognized the chart as a long term chart. That’s the only thing Ed ever said to me about trading. I finally had to go back to Wyckoff and Livermore and give up this nonsense. I was spending a lot of money listening to people tell me about the market and slowly going broke. I came to believe that if they knew anything about trading they would be trading and not trying to sell me a trading system that had 85% winning trades. If their trading system was so good, why didn’t they trade it and make a fortune? Why were they trying to peddle it to me? When I spent two years learning the Wyckoff method of stock market science and technique, the only technical indicator we had on our charts was momentum. I still use it to this day. In 1972 we had to update all our charts including point and figure charts by hand. It is much easier today with a good trading platform and a good chart service. But, I’ll go to my grave believing that the most important part of any trading system is the person operating it. Give any trading system to any ten people and tell them to follow it and at the end of the year, you will have ten different results. Any trading system will make money if you can sell enough of them. In my original career, I was an airline pilot for 35 years. They tried to do the same thing in aviation. These people thought it was a good idea for the computer to be able to over-ride the pilot. You know, pilots are humans and therefore prone to error. And, as far as flight instructors were concerned, you soon learned they would teach you nothing. They were too busy showing you how much they knew about airplanes and flying to teach you anything. I used to spend months at home learning a new airplane before I went to school on it because I knew the only thing the instructors were going to do was see if you knew it. Trend following is not the holy grail that was discovered by Ed Seykota and Larry Hite. They just found a way to automate some of it. And neither one of them can teach anyone else how to do it. Trading is something you learn by yourself. It takes knowledge, experience, and you need a flare for it. And my final thought is that you can make an easier living as a financial entertainer than you can as a trader. I’m thinking of Jim Kramer and the CNBC eye candy. Gotta go. I just got stopped out of Dec. Wheat!
Happy thoughts,
E. Allen Hine
Thanks for the detailed feedback. Some clarifications:
1. Wyckoff falls more into the predictive TA camp v. reactive TA camp (trend following). That’s no small difference. Point and figure and price action trend following are predictive v. reactive (see chapter one of my Trend Following book).
2. The most important aspects to trend following are:
• 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.
Those rules don’t outline “trend” as the most important thing. Those rules capture trends.
3. Trend following can be learned. Richard Dennis proved that with the turtles. Many other examples exist. The reason that my trend following book has caught fire for all these years is that it shows with data that unaffiliated traders around the world produce similar trend following returns.
4. I am well aware of early trend following influences, but it eventually morphed to a very particular style as evidenced by the performance data. Early influences.
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