Monday, April 29, 2013

A word (or three) from Jerry Parker

I've recently been re-reading Michael Covel's book The Complete Turtle Trader, the story of the group of traders known as the Turtles, who along with their mentors Richard Dennis and William Eckhardt were some of my inspirations when I started on my own trading journey. No matter how many times you read books like this, Trend Following (also written by Covel), Market Wizards, Way of The Turtle and others, there is always something to learn (or maybe re-learn).

Anyway, while reading The Complete Turtle Trader I came across this summary on the subject of trend following from one of those Turtles, Jerry Parker, who since the group disbanded has become the most successful of those traders via his firm Chesapeake Capital:

"Trend following is like a democracy. Sometimes it doesn't look so good, but its better than anything else out there. Are we going to rely on buy and hold? Buy and hope, that's what I call it. Are we going to double up when we lose money? The world is too big to analyze. The fundamentals are too large. We need to aggressively, unrepentantly sell trend following and describe it as it is: a system of risk controls that gets in the right markets at the right times and limits the disaster scenarios."

I may be wrong, but that basic summary of the core concept is why you don't hear of trend followers blowing up (LTCM, Amaranth, and Victor Neiderhoffer most definitely were not trend followers).

Covel's book also made reference to the second generation Turtles, such as Salem Abraham (who started after meeting and getting pointers from Jerry Parker). While I've never had the fortune to meet or correspond with any of these great trend following traders, I have been lucky that through books like those listed above, together with other publications or articles about those traders, I and thousands of other traders have benefited from their thoughts and experiences, their wins and losses.

About 18 months ago I emailed someone extremely famous in trading circles (no clues!) - I can't even remember how I came across their email address, and asked them about trend following in equities, and did they know any such traders? I was actually surprised with the response, which basically stated that they doubted such an approach would work. That email is posted up on the wall next to my desk.

Referring again to The Complete Turtle Trader, Parker states that "I think another mistake we made was defining ourselves as "managed futures", where we immediately limit our universe. Is our expertise in that, or is our expertise in systematic trend following, or model development? May be we trend follow with Chinese porcelain. May be we trend follow with gold and silver, or stock futures, or whatever the client needs...". The point is that, if the system is robust enough, you can trade anything that has a price which fluctuates attached to it.

In my own case, I happened to predominantly trade equities using my system, which is based on the Turtle methodology, with my own tweaks. I'd like to think that the performance I've achieved proves the point that it CAN work on stocks. Although we are not running multi-million dollar funds, those traders that I teach and mentor are also learning and beginning to profit in their own accounts. In our own little way, is this nurture over nature all over again?

1 comment:

  1. Hello,

    Great post, as usual. I agree that The Complete Turtle Trader is well worth reading over and over.

    I'm not sure if you are aware, but Jerry Parker was on Covel's podcast on April 10. Based on the podcast, Parker certainly thinks that trend following works on stocks and he is even launching a mutual fund that will solely trend trade stocks. It will be interesting to see how the fund does in the years ahead.