Before stating this, I’ll say that I’m a person who has always been buy and hold, and does NOT mind drawdowns. I lived through Black Monday, the Internet bubble, and the financial crisis, and generally just bought more when I thought things were getting near their lows (kind of a trend strategy in itself). I never sold and was happy that things were finally getting cheaper. The market has rebounded every time, and I’ve been fortunate to make what I lost and more.
Having said that, today I placed my first trend-based (price only, systematic decision) orders today with lot sizes based upon a defined and more than acceptable risk, and with trailing stops based upon volatility. There was something quite comforting about having a defined maximum risk, I must say. Also, I placed trailing stops on several other positions in my account as a function of volatility as well. All thanks to techniques I picked up from your show.
I think it was James Rohrbach (episode 17) who first caught my attention with a simple question when talking about the market. He mentioned, with respect to buy and hold, something to the effect that after a large drawdown, the market may very well come back. As true as that may be, he asked, “Is sitting through that drawdown the smart thing to do?”
Some of the trend stuff, such as intelligent bet sizing, risk management, etc., is more than just trend following. It just makes sense as sound capital management best practices. Thanks for spreading the word.
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