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The Truth: A Two-Edged Sword

The truth is, almost everything about superior investing is a two-edged sword:

-If you invest, you will lose money if the market declines.
-If you don’t invest, you will miss out on gains if the market rises.

-Market timing will add value if it can be done right.
-Buy-and-hold will produce better results if timing can’t be done right.

-Aggressiveness will help when the market rises but hurt when it falls.
-Defensiveness will help when the market falls but hurt when it rises.

-If you concentrate your portfolio, your mistakes will kill you.
-If you diversify, the payoff from your successes will be diminished.

-If you employ leverage, your successes will be magnified.
-If you employ leverage, your mistakes will be magnified.

HT Howard Marks.

More on stretching the truth.

How to Close (And I’m Not Talking About With Girls)

Feedback in:

For a long time I am debating with myself how to approach the “Close” problem. I can summarize it very simply: When using any of the Open-High-Low-Close prices, in our testing, and algorithms, we are using a thing that do not exist in real life. In real life, these numbers are known of course, only in the next bar or only in the last tick of the current bar. So, if the logic depends on doing something, intra-bar, by the status of these numbers, it is only in the last tick, (and therefore with the possibilities of suffering a very extended bar) or to enter and exit intra-bar, in case these numbers changes as to change the decision to enter or exit. The two alternatives will create a very harmful effect on the system performance. I am aware of the possibility to create a buffer around the line of decision, and so, not to enter-exit back and forth, too much, but then the question will be how wide this buffer should be, relative to the time-frame (and volatility). Any ideas or suggestion? From listening avidly to your audios, I think that you deal with a more “long-term” approach (weekly bars) but I think that this “problem” is relevant in all time frames and even in all price representations. Many thanks in advance.

Nothing I prescribe is intra or day trading. Simplest way I can offer feedback. This is not a trend following concern.

Universities Don’t Help With Trend Trading

Feedback:

Hi Michael, How have you been enjoying Saigon so far? I’m a new trader and I have been trend trading stocks and FX for a few months now. My style of trading is somewhat like Jon Boorman, who was on one of your podcasts. Recently, I have been thinking about getting a Master degree in Financial Engineering since I wanted to learn how to make my trading more mechanical, along with how to better control risk & position sizing. Money matters aside, do you think it’s worth it to go to graduate school for this? Or is there a better way to learn these specific skills? Also, may I ask how you came up with your trading system? Was it a solo work or did you need a programmer to work on it? Thanks a bunch! And have a nice day!

There is no formal school to help you become a trend trader. Do that (formal school) and you only delay progress. You can either code yourself or hire. Done both ways and there is no right or only way. My books, other books I recommend, content on my websites, podcast and my training at trendfollowing.com/products all help people get there quicker versus formal education.

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