Saturday, September 15, 2018

Trend following - a simple way to playing the long game

Warren Buffet once said “There seems to be some perverse human characteristic that likes to make easy things difficult.”

A good trend following approach allows you to participate in the equity and other financial markets eliminating a lot of the difficulties.

Your basic rules will tell you:
  • what to do;
  • when to do it; and
  • how much to risk.
You can trade 'parrot-fashion'. No opinions or predictions are required. You simply follow price, see how it interacts with your chosen entry and exit parameters, and only then do you need to do something.

Saturday, September 01, 2018

Trend following, simplicity and robustness

"We have a saying here: "It is incredible how rich you can get by not being perfect." We are not looking for the optimum method; we are looking for the hardiest method. Anyone can sit down and devise a perfect system for the past." - Larry Hite

As a trend follower, it is important to acknowledge and accept that individual stocks making up the 'stock market' are in a constant state of change themselves, be it trending or non-trending, and all with differing levels of volatility, as well as the indices themselves, along with foreign exchange, interest rates, commodities etc.

Friday, August 10, 2018

Saturday, August 04, 2018

Bitcoin and the evaporation of open profits

One of the most difficult aspects of trend following for inexperienced traders to accept is that you never get out at the extreme of a price move, and that there is always an element of 'giving back' a portion of open profits before an exit signal is given.

Generally speaking, the longer-term the trends you are trying to capture, the more wiggle-room your trailing stops need to give to current price action - this is to ensure that you are not stopped out due to a relatively minor retracement or price noise.

When starting to trade a new method or parameters, even if you have may be got the confidence of decent back testing results, there is still the big step into the unknown when it comes to dealing with the psychological element of letting profits evaporate when you have real money in the game.

This was brought home to me recently when discussing a long-term trend following system with an aspiring trend follower.