Sunday, March 11, 2012

Don't take my word for it...

I've spent part of today catching up and reading some of the many trend following websites I track today, and came across this excerpt below from an interview with a successful trend follower. Nothing different really from what I've said many times on this site, from which both traders and investors can benefit - proof that trend followers all think the same... 

"Q: Do you see trend following working as effectively in bear markets as in bull markets?

A: Absolutely. Even if you were only a long investor and simply moved everything to cash during down trends you would be much further ahead than buy and hold. Since Trend Followers have no bias towards long or short selling, we take part equally in trends, whatever the direction. In my case, my exit strategies become even more important, as the moves from panic selling and fear are typically more violent. The resulting retracements and moves against your position can be equally fierce. Using standard channel exits can leave enormous amounts of open profits on the table. I have found on the short side my partial profit target may get hit in days or in some cases hours, whereas on the long side it is typically a longer process lasting weeks. In my opinion trend following will always work because people have not changed. I don’t see much difference in Tulip Mania compared to the Internet Bubble and currently Gold.

Q: What does a typical trading day look like for you? Is it something anyone with a “normal” job could handle?

A: Typical trading day is 15-20 minutes. I enter conditional orders for my entries out of market hours (or typically during slower volume periods with Forex) with my initial stop loss and partial profit target. I then adjust my trailing stops as needed, which are also outside normal market hours. I realize it is not very exciting, as I am not hopped up on coffee shouting at CNBC anchors with 50 flashing screens while trying to disseminate useless fundamental information pouring in from trading news sources. So yes, based on the time required, anyone with a normal job could easily trade a long term following system.

Q: Why do you think trend following is so powerful, in terms of consistent long-term results?

A: The biggest reason I already mentioned before, human nature and the individual participants have not changed. Fear & Greed are as prevalent now as they ever were. There will continue to be bubbles and trend followers will continue to profit from those moves. I don’t know when it will happen, but eventually Gold/Silver will provide some great shorting opportunities as well as Bonds. Whenever that does happen I won’t be the only trend follower to participate in those moves. “This time it’s different” is the probably the most accurate and predictive tool for signs the trend is almost over. Conceptually trend following covers enough markets, whose moves are large enough to more than make up for the expected small losses."

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