Tuesday, December 23, 2014

Well, I did say...

In this recent post, I talked about how trend followers can suffer a drawdown or a period of non-performance seemingly for months, only for things to suddenly turn around. This isn't just particular to me, but is what all trend followers have to go through on a periodic basis.

Well, after suffering what seemed to be a never-ending run of losing trades over the last few months, I've managed to get into a couple of profitable trades, of which one in particular has started to trend nicely.

What have I done different? Well, I did talk here about placing less emphasis on what the markets in general are doing, and to concentrate solely on what the individual stocks I am looking to trade are doing. And these current long trades were opened while the major indices were moving down in the early part of this month. But, generally speaking, the basic entry criteria is exactly as before. There was no need to re-invent the wheel, just a minor tweaking to my psychology as much as anything.

Now, those profits can quickly evaporate, but there should be no fear of that. The aim of trend following is to let profitable trades run until such time when the trend has been extinguished. That could happen in the next session, it could be in three months time - who knows?

The problem is that the vast majority of individual traders would not be able to keep themselves in the game long enough to profit when a losing run ends. They will have either blown up their account through poor risk control, or will have ditched the trend following approach and moved onto something else as part of their 'holy grail' search.

If famous trend followers such as Richard Dennis, Ed Seykota, Bill Dunn and others have to endure such drawdowns, and more importantly have the mindset, patience and discipline to accept such periods, shouldn't you too??? 

All I do know is that one decent trend has the potential to eliminate a whole bunch of small losses in double quick time, and that is possibly starting to happen now. These profitable trades explain the difference on the 'Summary Trade Performance' blog sidebar between the overall performance returns achieved for closed trades only, compared to all trades. Long may it continue.

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