Thursday, January 17, 2013

Wise words from a legend

A short snippet here from Jack Schwager's interview with trading legend Ed Seykota's in Market Wizards:

"The profitability of trading systems seems to move in cycles. Periods during which trend-following systems are highly successful will lead to their increased popularity. as the number of system users increases, the market shifts from trending to directionless price action, these systems become unprofitable, and undercapitalized and inexperienced traders will get shaken out. Longevity is the key to success".

Following the major trends in the general indices from say 2003 through to the end of 2010, the last couple of years has seen a drop off in performance due to the lack of market direction, and the general level of volatility, which I have alluded to in previous posts. Were those earlier years a once in a lifetime period? No - any major uptrend or downtrend in the markets will generate a trend follower significant profits. The trick is to have the confidence and belief that, when encountered with directionless or volatile markets, the trend follower will be able to keep the majority of his equity intact, so that when those big trends start to appear they are best placed to profit.

Whether we are on the cusp of such a period is anyone's guess. However, trend followers are observing the markets and placing their bets accordingly.

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