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Practice Patience or Not; Your Choice

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Hi Michael, since I started trading the system with real money, I’ve had a more difficult time getting traction. However, this is because I started at the beginning of March when leadership rotation kicked in big time and the main US equity indices basically stopped trending. Are you seeing others having a similar experience over the last 8 or so weeks?


Two months is two months. Just a blip on the screen relatively speaking for trend following. You have examined typical trend following records in my books, for example?

Big picture is big picture. Small picture is small picture.

Practice, Patience and Perseverance

Trend Following is a lifestyle. It is a way of thinking, acting and doing. It does take determination, however. It isn’t easy to make money from the markets, just as it isn’t easy to become an Olympic athlete. Think of all the factors about yourself that would need to be altered if you were to train for the Olympics. Your diet, fitness routine, coaches, psychology and so much more would have to be worked on tirelessly to make it to the top. Your whole lifestyle and way of being would need shift. You would have to put the time in.

Now lets put that into trend following terms. You cant expect to read only a book (even though mine are a great first step), with no work on your end, and magically make millions in the markets. If it were that easy everyone would be making the big money. It takes practice, patience and perseverance. You can memorize algorithms or imagine the “perfect” system all you want, but until you master your psyche you will never reach your full potential. This is why Charles Faulkner (listen) has been on my podcast three times and is easily one of the most popular guests.

How Does One Get to Be a Trend Following Trader? A Great One?

Consider wisdom from author Seth Godin:

Wouldn’t it be great to be gifted? In fact…It turns out that choices lead to habits. Habits become talents. Talents are labeled gifts. You’re not born this way, you get this way.

Start. Find an edge somewhere (anywhere) and start.

Too Simple: A Big Reason Many Investors Miss Trend Following

An unexpected source explains why many miss understanding trend following trading:

If the explanations you’re demanding for what works aren’t working, perhaps it’s because you’re avoiding nuance in exchange for simplicity.

[For example], your boss keeps asking you to explain your whole plan in three Powerpoint slides. The VC who allocates one minute to understand why your business will work has done everyone no favors. The blog reader who clicks away after a paragraph wasted his time visiting at all.

Skip the complicated, time-consuming part at your own risk…If it were obvious, everyone would do it. Wait, that’s too simple. How about this: Nuance and subtlety aren’t the exception in changing human behavior. They’re the norm.

A great example of how some miss understanding trend following by avoiding the subtle? They see one losing month and panic. If you work with that type of quick judgement you would be better off taking the blue pill and going back to sleep. Seriously! That excerpt connected well with this article sent by a reader in Australia that pumps the mistaken notion that investors can predict trends:

He’s adapted Nate Silver’s model very unscientifically to the global news cycle, using it to compile a handpicked store of knowledge, which he then aggregates to get a feel for where markets are heading.

The system requires at least five or six different news sources ranging across left to right leanings to provide the sort of radar that will give an accurate fix.

You may think you don’t have time to manage this, but there are apps that make it easy. Pulse is one I use because it enables the collection and collation, in chronological and subject order, of top news of the day from nominated sources. My friend’s favourites include Salon, Slate, The Atlantic, Bloomberg, CNN and Huffington Post.

He spends part of every morning trawling through headlines and reading only what he deems relevant to provide a snapshot of where the world is at any given moment. Over time this has helped him develop an accurate read on how he might reposition himself across sectors.

“If you’re reading a variety of news sources, you definitely start seeing trends, especially as everyone’s saying the same thing just in different ways,” he says. Lots of cautionary stories generally mean something bad is about to happen.

“If you’re hearing the same thing from multiple sources, that’s generally when something’s going to happen,” he says. “Which is why I’m out of stocks. There’s no way they’re going to stay where they are. They have to come down.”

Isn’t this akin to timing the market?

“No. I’m just trying to predict a medium- to long-term trend. If you want to get rich quick, this isn’t the way to do it because it’s very macro.”

He admits his method is not totally straightforward, and that there may be quite a wide margin for error depending on nominated reading material and how clever the reader is it at distilling it. But do it for long enough and you will get better at it.

Read, absorb, think and learn. Then do it again, then again. And eventually you’ll be smarter, too.

If you think tracking news sources to predict market trends might possibly make you rich, then you will probably get exactly what you want from the process. What is that? To have the feeling of losing money! For those of you who want the subtle from me, the nitty gritty, read.

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