New testimonial

 

Below is a testimonial received from Paul, who I have known for a number of years now and has continued to make progress as a trend follower:

A Turtle talks about trend following on stocks

Almost a month ago I posted this article about how that, given the recent price action, I was currently shorting individual stocks. I also mentioned that I had recently taken a couple of long trades, again purely based on meeting my entry criteria and triggering an entry.

Well, since then the long positions taken ended up generating small losses, but some of the short trades taken are still going strong. No reason to exit if the trend is still intact and the trailing stops haven't been hit...

Not 'jumping off' the ride, and letting trades play themselves out

A trend follower never takes positions based on predictions or opinions about what may happen. Trend following is reactionary, and based on what price is doing - therefore price has to show some strength before you look to go long, or some weakness before you look to go short.

Just as importantly, trend followers never try and predict potential turning points in a market. There is a process where price can look to change trend from one direction to another - this can happen very quickly, or in some cases take several months! Generally speaking though, this takes time, and a single day's movement does not constitute a change of trend.

It is for this reason that trend followers never get out of an existing position at the extreme of the move. There is always a process of 'giving back' some of the open profits before an exit signal is triggered, and/or a change of trend is signalled.

Combining technicals and fundamentals for investing

Recently I had the opportunity to review an investor’s portfolio. This was valued in excess of £1m. The allocation of the funds was entrusted to a well known brokerage. I was asked for my opinion on the performance and allocation of the fund.

One year on - have the changes worked?

"The great thing about being a trader is that you can always do a much better job. No matter how successful you are, you know how many times you screw up. Most people, in most careers, are busy trying to cover up their mistakes. As a trader, you are forced to confront your mistakes because the numbers don't lie." - Marty Schwartz

It is about a year since I start making some changes to my own trading approach. This followed a poor run of losing trades over several months which eroded most of the gains I had made in the first part of 2014. So, did those changes work?

Why I'm on the sidelines

Readers may be wondering about the lack of trades taken and shown here over the last 2-3 months.

Well, that is because of a number of points, some of which have been mentioned several times on previous posts. These are summarised below:

Trend following differences

I was asked the question last night about how I differ from other trend following traders.

The basic principles I (and many other trend followers) follow have been used by many successful traders going back decades - people like Ed Seykota, Jesse Livermore, Richard Dennis and the Turtle traders, as well as Richard Donchian, plus others. All have influenced my own approach to trend following.

Each had their own method of identifying when to get in and out of positions, their approach to risk, their chosen markets, their trade selection process etc.

What each trader does over time is evolve and refine their own approach, while keeping the same core concepts and beliefs as other trend followers. The differences come in how they implement those beliefs, along with the specifics of the parameters used.

Let those profits run!

We have seen a volatile start to the new year in the major market averages. These gyrations in the market have been increasing in intensity and frequency over the last few months - pullbacks and sharp reversals have been seen in early August, the first part of October, mid-December and now from the beginning of 2015.

Given my own goal for this year of concentrating more on the price action in the stocks I am looking to trade rather than the indices, these market movements have been noted but have been of less importance and relevance to me than before.

As it is, one or two trades have failed (which can happen with any position), but my most profitable trade has continued to inch up regardless of the general market volatility or movement, and is now over +6R in profit on its own.

Why I only buy on new highs and go short on new lows

Pure trend followers buy on strength and go short on weakness. In such a system you won't be opening positions on pullbacks or retracements that go against the main trend identified. Some traders will say that doing this would reduces the risk and maximises the rewards available.

Precious metals on the way up

Although I do not generally trade commodities these days, I do keep an eye on these markets, along with the major forex pairs. This is purely my preference, as I concentrate my efforts on stocks, yet historically the majority of the successful CTA's and major trend followers have utilised this strategy on commodities, forex, indices, interest rates etc.

Market speculation

I'm all for keeping things simple, and boiling things down to the absolute basics. Today, I decided to key into Google 'definition of market speculation' and see what came up.

Some random charts

Here are some current charts as of now - I will let you interpret the signals and trends on them:

Natural Gas

Although I concentrate on trading stocks, most trend followers tend to concentrate on other instruments, such as commodities, forex, indices, interest rates etc. To a degree, all markets are inter-related in some way or another, so I do look at these charts periodically, and as you would expect, there are trends popping up all the time.

Crude carries on down

There will be plenty of traders around the globe loving this downtrend on Crude Oil - a staple instrument in a typical trading basket of a trend follower.The $80 level is now broken - I'm sure hoping I'll see a similar kind of drop at the petrol pumps, but somehow I doubt it...

Remember, one big trend like this can easily the cover the accumulated small losses created by earlier failed signals. Just need to keep the faith...

Crude still leaking...

Russell Sands

Below is a talk given by ex-Turtle Russell Sands. Although he talks about trading commodities, the principles remain the same whether you trade stocks, commodities, interest rates, foreign exchange or anything else.

The philosophy of a trend follower

There are many ways of trading in the equities and commodities markets. These consist of utilising fundamental analysis, technical analysis or a combination of the two. A good trading method should be robust, which to me means that you can use the same method when trading stocks, the GBP/USD, soybeans, gold, or anything else, without having to tweak the parameters.