“To make a simple point, it would be impossible to take a profit (or loss for that matter) unless price trended at least a little bit. Can one know absolutely when price will trend? No….Does one have to know absolutely in order to have a profitable business? Certainly not. In fact, a great number of businesses are based on the probability that a time based series will trend. In fact, if you look at insurance, gambling, and other related businesses, you will come to the conclusion that even a small positive edge can mean great profits.”
Chat Forum Post
Category: Trend Following
Why Trend?
Why do markets trend:
“Whether it’s because of gradual dispersions of data, participants’ interpretation of data, fundamental factors or seasonal factors, historically, markets trend,” says Bruno. “You can get the edge if you approach them with a systematic, disciplined trend-following methodology and, over time, extract consistent profits from them in either direction.”
Thomas Bruno
But once you believe in “trends”, adopting the trading philosophy is next:
“When the firm’s computer programs identify that a trend has begun, Campbell’s traders will “join that trend and, at the same time, determine a point where we will exit if we are incorrect,” says Little. If the trend continues, these traders will follow with a trailing stop. Little adds that they do not automatically reverse, and will often have no positions in trendless markets.”
Managed Account Reports
The Downside
How do you view your trading downside?
“Most traders, being trend followers, get hurt whenever a [market] reverses course. But downside is managed using several techniques: quick stop loses, maintenance of the bulk of assets in treasury bills, and adjusting leverage in opposition to prevalent market volatility. Jeremy O’Friel…emphasises the importance of constantly manipulating “gearing” (another term for leverage) as a means of maintaining a consistent level of risk as the economic environment changes.”
Nonrandom Moves
Sunrise Capital gives trend following an explanation:
“The objective is not to attempt to buy lows and sell highs, but rather to buy market strength and sell market weakness. The underlying theory is that markets periodically exhibit nonrandom price movements or trends that are persistent and can be exploited by an approach that does not forecast, but simply follows price trends. Trend-following models apply quantitative analysis and/or pattern recognition algorithms to the daily price data of the market being traded, which serves as the sole data input to the model. This approach, commonly referred to as technical analysis, is based on the concept that all fundamental or external data that might impact a specific market is already reflected in the current price.”
Sunrise Capital
The Short Debate
The Wall Street Journal ran a story the other day titled “List of Challenges for Short Sellers Keeps Growing Longer.” The piece questioned whether short trading was still viable, but also made the case as to why short selling is a needed part of our market system.
One guy in the article opined, “For me, shorting has changed from being an inherent strategy to a more tactical strategy.”
Trend following trading on the other hand has always been tactical or said another way opportunistic. Trend followers don’t wake up and aim to be all “long” or all “short”. Trend followers can be either long or short depending on which way the trend is going.
The Wall Street Journal article unfortunately continues the idea that you are either long only all the time or short only all the time. Why write this when the best traders don’t think or trade with such belief sets?
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A debate on Trend Following Drawdowns
Aspect Capital and Martin Lueck
Aspect Capital: London based trend following trader (PDF). With roots to some of the great trend following trading firms, Aspect Capital has become a major player in the managed money arena.
More.
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.
Long Volatility Report: Trend Following
Long Volatility (trend following) white paper (PDF) by Anders Kulp, Daniel Djupsjöbacka, Martin Estlander.
Excerpt: The buyer of an option straddle pays the implied volatility to get exposure to realized volatility during the lifetime of the option straddle. Fung and Hsieh (1997b) found that the return of trend following strategies show option like characteristics, because the returns tend to be large and positive during the best and worst performing months of the world equity markets.
More.
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.