Monday, June 03, 2013

Is trend following a full time commitment?

One thing I stress to people I mentor is that the trades I take are tweeted purely for educational purposes. I do not necessarily know whether they follow me into the same positions or not. The aim is that those trades are flagged up so that they can go look at the charts, and with the help of what I have taught them, they gain a visual and "live" example of what I look for in a position. Should they follow me into those trades, then it is a question of following the system rules until an exit is triggered.

It should be said that these days I devote very little time to my own trading. The scans I use help in saving me time. From going through the scan results, I know instinctively whether I want to trade a particular stock from a quick look at the chart. What other people may deliberate over, I can size up within a few seconds. This is the product of looking at the same charts and set ups, day after day, week after week, but is a skill that aspiring traders can develop over time. If I could do it, then anyone can.

Secondly, my own preference is to take positions that are signalled in the first hour of the trading day, freeing up the rest of my day. After scanning for potential trades, opening any positions that appeal, and updating stops (if required) on existing positions, there's not a lot else to do.

Other people may prefer to wait at least half an hour after the open, while others may look near the end of the day or even after the close, and use the system on an 'end of day' basis. As a result, the performance stats based on my own trades should only ever be taken as a guide to what potentially can be achieved utilising the strategy I advocate.

I probably trade only a very small percentage of the worthwhile signals generated (that fully meet my criteria), over the course of a year. That is where the discretion element comes in - for example, some traders prefer to trade through earnings, other avoid opening positions in stocks that have upcoming releases due. Other factors may be whether your broker covers that stock, whether you feel the bid/ask spread is too wide, whether you think the stock is liquid enough, etc.

In addition, while I have pre-determined position limits, since July 2012 (when trades making up the performance record were recorded), I have not once reached those limits. Therefore, I have been severely under-invested, particularly during the nice market uptrend in the early part of this year. Had I been more committed, spent more time going through my scans throughout the trading day,  and opened more positions as and when appropriate signals were given, there is no doubt in my mind that my performance would have been significantly improved. But that, again is a discretionary 'lifestyle' choice.

The scans I use to screen potential candidates update in real time. Therefore, on any given day new long and short opportunities will crop up as soon as a possible signal is given. And, as we trade equities in different countries and timezones, it means that anyone can dip in and out of our private feed and see what is going on, what other people are tweeting about, as well as post their own ideas or discuss other set ups.

By definition, trend following does not mean sitting in front of your PC from the moment the market opens to when it closes. The bulk of the traders I help all have either full time employment, or are busy running their own businesses. They have found a way, using the skills I have taught them, and the time saving scans, to allow them to participate as much or as little as time and their other commitments allow.

People who read of the Turtle Traders will know that they could go days at a time without an entry or exit signal being given. Trading on this timeframe and with clear entry/exit rules mean that you can eliminate much of the market noise generated, which makes it ideal for those who do not want to be tied to their PC's.

I've shown some charts below of trades I have NOT taken, even though I saw the relevant signals come up on my scans. It just shows how there are plenty of profitable opportunities out there if you know what to look for. The scans will just keep churning them out, day after day. Some of these examples have occurred within the last few days - one or two I did mention as set ups on the private feed at the time. As a result, those other traders may have benefited from the signals, whereas I didn't.

Bearing in mind the above, I believe that the returns I've generated could be replicated (and quite possibly beaten) by anyone, even if they have limited access during the course of the day, providing they have developed their knowledge and understanding of the system and its nuances, and have quantified their risk parameters and position limits. If you are interested in learning more, then click here.

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