More on knowns, unknowns and risk

The recent passing of Donald Rumsfeld caused me to reflect again on his (in)famous "known knowns, known unknowns and unknown unknowns" speech (see here), but the truth is that we always have such instances possible in the markets, at any time.

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...

Finding your own holy grail

While many people say there is no such thing as a holy grail in trading, I happen to believe there is, but not in the generally accepted sense of some magical set of entry and exit parameters. Furthermore, I believe everyone's holy grail will be personal and unique to themselves.

Finding your own holy grail is a two-step process:

Is this price action different?

My guess is that there are plenty of people trading now who didn't participate in the markets in 2008. Since the market bottomed out in March 2009, there has been a long uptrend, although the major averages have certainly struggled to make new highs in recent times.

Christmas 2015 offers

I have a selection of discount offers open on the e-book, 1-2-1 training and mentoring (both annual or quarterly instalment options) - click on the links for more details.

These will run until 31 December 2015.

A frustrating week - and a look at stops

Last week was a frustrating week. At one point I had three positions open but by the end of the week I was back to being 100% in cash. Lets look at what happened:

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:

Is this another 'once in a lifetime' event?

As I type this, we still don't know the outcome of the ongoing negotiations between Greece and the EU/ECB/IMF 'troika', and the potential ramifications of any decision taken - from the political, economic or the financial markets point of view.

No doubt there will be traders seeking to profit from this situation, but we have already seen this year how an unexpected announcement created a major market event.

Back in January, we went through a supposed 'once in a lifetime' event with the extreme price moves on the EUR/CHF, and other related currency pairs. Now, less than six months later, we may be on the verge of another.

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.

Some random charts

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

Trading and Donald Rumsfeld

Here's a couple of famous quotes from former US Secretary of Defense, Donald Rumsfeld, which can easily be applied to trading, and in particular, to the core element of risk management:

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.