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Overpopulation: A Trend Following Debate

When asked about trend following becoming “overpopulated” a Richard Dennis quote is often best:

“I don’t think trading strategies are as vulnerable to not working if people know about them, as most traders believe. If what you are doing is right, it will work even if people have a general idea about it. I always say you could publish rules in a newspaper and no one would follow them. The key is consistency and discipline.”

Psychology and following the rules are paramount–bottom line. Consider more from an excerpt from The Complete Turtle Trader:

The techniques that Dennis and Eckhardt taught the Turtles were different from Dennis’s seasonal spread techniques from his early floor days. The Turtles were trained to be trend-following traders. In a nutshell, that meant that they needed a “trend” to make money. Trend followers always wait for a market to move; then they follow it. Capturing the majority of a trend, up or down, for profit is the goal.

The Turtles were trained this way because by 1983, Dennis knew the things that worked best were “rules”: “The majority of the other things that didn’t work were judgments. It seemed that the better part of the whole thing was rules. You can’t wake up in the morning and say, ‘I want to have an intuition about a market.’ You’re going to have way too many judgments.”

While Dennis knew exactly where the sweet spot was for making big money, he often fumbled his own trading with too many discretionary judgments. Looking back, he blamed his pit experience, saying, “People trading in the pit are very bad systems traders generally. They learn different things. They react to the [price] ‘tick’ in your face.”

Feedback from a listener that addresses Richard Dennis:

Hi Michael,

Hope you are doing well. Again, I appreciate everything, specially your commitment to the trend following podcast. In a recent back to back [other podcast] between [name] and [name] they address an important question:

Q: What lessons do you take from the fall of Richard Dennis? One of the biggest swingers at the Board of Trade…great trader…not only that but he believed he could replicate trading skills and did so successfully. He trained a whole generation of people who came up [and] manged billions…and then he basically goes and explodes. What is the practical lesson for your audience here?

A: Speaking to the trend following school in particular (and various trend followers who blew up or bled out): I do believe that certain trading styles and methodologies can suffer greatly from overpopularity. When there are too many people following a widespread strategy, and not enough differentiation among that active group, the strategy can be degraded to the point of no longer working.

Personally, I don´t agree with that argument because market trends have been persistent over time. As Howard Marks said: “We don´t have to worry about everybody becoming to prudent or to wise, because we are talking about human nature.”

I would appreciate your insight on this argument.


I don’t see any argument. My views on this are answered across 2 books comprehensively (the question above has some inaccuracies for starters):

1: The Complete TurtleTrader
2: Trend Following

My best response is in about 180,000 combined words (that is not a dodge; reality is that my answer is long). And yes I talk about the good and bad of Richard Dennis, but the good far outweighed the bad.

“Why has the turtle trend-following system stop working?”

A recent chat thread about “Why has the turtle trend-following system stop working?” [not accurate headline]:

Forum guest: The drawdowns are horrendous for long term trend following systems. Don’t go near them!

Covel: Chris Clarke has good insight on this podcast ep. for those that scream “drawdown” when discussing trend following.

Also, drawdown goes far beyond trend following. Consider an excerpt from PragCap:

Another way to illustrate this is if you look at something like Berkshire Hathaway. BRK has gone down 50% three times in the past (or maybe more). Once in the early 1970′s, once in 1999 and then again during the recent crisis. Of all the investors who owned BRK in 1970, how many have done better than the 20% or so return of the stock over the years by getting in and out of it in order to avoid the 50% drawdowns?

Big returns over time come with big drawdowns. Buffett has also said himself:

“Unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market.”

No wisdom there (heavy sarcasm).

My thoughts on Michael J clark of Clark Capital Management, one of the Trend Following Legends.

Looking to Buy a Money Machine?

Feedback in:


I have just finished reading your communication on the “why sell system..” Here is my take on it. It is perfectly honorable to sell [a] system. I think there are two broad groups of people who buy systems.

One group who buys these with expectation that they are buying a machine to print money tomorrow are set up for immediate disappointment. They can’t/don’t follow it and experience it in real life and do only in bits and pieces and eventually abandon it.

The other group buys system as first step towards their education and if it works out for them they work on improving the system to match their needs and personality. Eventually they end up with something that has basic foundation they started with but totally different parameters etc.

So both group ends not using system they started with but they have entirely different outcome in the process. It is like attending High School: some people finish that and some don’t.

This is a complete hypothesis on my part, so do let me know if you have any insight on what happens after people buy your or any other system.

I can’t see how people think that if they buy anything from me that it is a machine to print money. Unless they are delusional. In terms of ‘system learning’ the Turtle experiment proved rules could be taught. Sure, you can modify, but it’s still trend following.

Insight after they buy?

Of course, I am sure some don’t trade for any number of reasons. However, trying to figure that out is like studying fundamentals–a never ending futility.

Trend Following Wisdom from Dalio

A recent email in:

(Indavertent) TF Wisdom from Dalio:

“To make money in the markets, you have to think independently and be humble. You have to be an independent thinker because you can’t make money agreeing with the consensus view, which is already embedded in the price. Yet whenever you’re betting against the consensus there’s a significant probability you’re going to be wrong, so you have to be humble.”

Wisdom from a man that knows how to trade unexpected trends in a 100% systematic fashion.

Trend Following Machines Cash in—Again

All these years later, all these stories later, and CNBC still has a difficult time explaining trend following to the masses. One good excerpt:

Funds managed by ISAM, Cantab, AHL, Systematica and others produced double-digit gains over the first three months of 2015, according to private performance figures obtained by CNBC. “Trend followers and other macro investors clearly outperformed,” said Robert Christian, head of research at K2 Advisors and Franklin Templeton Solutions. “What’s carried people is just classic, good old trend following.”

Note: ISAM is Larry Hite’s shop. One of my favorite no-nonsense trend following pros.

How the Markets Tempt Us Into Making Mistakes

Feedback in:

Hi Michael,

Saw this article and immediately thought about trend following. There are the obvious aspects like being systematic, following the trend lines and thinking for the longer term. The interesting part was the discussion of the retiree and the temptation of the markets to derail his disciplined approach. I see the temptation of the markets being the greatest enemy to the discipline required to be a trend-following trader. Please enjoy.


PS. Thanks for you all your work. It’s really appreciated.


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