Gary Davis: Trend Following Trader

Gary Davis and Jack Forrest (Davis’s current partner at their firm, Sunrise Capital) were both doctors working in research at the University of California San Diego. They were also tennis partners. Forrest desperately wanted someone to bounce trading ideas off of and who could trade his same systematic trend trading way, but he had no luck initially finding a trading comrade. Forrest had about a five year start on Davis before they even began discussing trading. Even though they were good friends, Davis had no idea of Forrest’s trading passion.

How did Davis finally learn of Forrest’s passion? It all started with the mention of pork bellies while sitting on the beach after a tennis match. Yes, they were talking pork belly futures contracts, the type traded at the CME. Pork bellies? Just a fancy name for bacon. While talking about pork bellies on the beach that day, Forrest said that he had all of these books on trading and told Davis that if he was interested in learning about the markets he was welcome to borrow them.

Davis powered through almost 20 books in a weeks time. It was the beginning of his trend following trading career. Does this sound like an accident? Does this sound like Davis had no preset plan to be a trader? You would be correct. Davis enjoyed his faculty work, but never thought it was the perfect spot for him. He felt like a misfit among the rest of the faculty.

Davis was just about to turn 34 when he started trading with a trend following program he had learned from author J. Welles Wilder, Jr. He lost on his first 17 trades, but once he made one tweak, which he believed is the only reason he is still trading now, he was back in the game.

Davis’s Aha! moment

What was Davis’s Aha! moment exactly? Dissect people who have been successful in almost any form of trading long term, and who have been trading some form of trend following or momentum trading. Successful fundamental traders often have great success because they’ve been in the right place at the right time.

After recovering from his first big losing streak, Davis realized that he had no idea what anybody else was doing beyond his book reading. One thing he did know was that most traders last six months and lose all their money. Worse yet, it seemed successful traders lasted three years and then lost all of their money. He expected that his trading career would follow in a similar fashion.

More apt to be involved in independent study, Davis never did like talking to other traders much. He felt the key to his trend trading strategy was to stick with his plan, not changing rules around after looking at someone else and saying, “He has got this great idea. Oh, Ill try that.”

The experts who write books on fundamental analysis, appear on financial TV with daily predictions, or worse, the ones who write articles saying that you cant be the next Gary Davis, ignoring 30 years of positive performance are just wrong. I would argue that critics in the face of performance proof are delusional. Their fears and concerns are a broken record, while at the same time the trend men keep producing.

However, some academics are concluding that taking a systematic approach to the markets is viable. They are learning, as trend traders already know, these strategies can make you money and reduce your overall portfolio risk. You really can take any reasonable systematic approach, track multiple markets, and have the chance to make serious money in the long run. But don’t be fooled, it takes hard work. People always want the big moneymaking strategies, and they exist, but it takes practice to win, just like learning to play the piano.

Most people are not willing to sit down, get a good teacher, and practice. Trend trading success is very analogous to learning an instrument. There’s no difference. People would like to make the big money, but no one is going to give it to you. You have to work and do something for it. That something, in the case of Davis, is sticking to an ideology. This is how Davis has been able to stay strong as a systematic trend follower. His success is an inspiration for everyone.