Sticking with the process

My historical win rate is about 30%, so with the majority of my trades generating losses, I have learnt to accept losing money along the way.

To me, what is far more important than the monetary outcome of any one trade is whether I am sticking to my process and my execution:

New testimonial

Just before Christmas I received the following from Stefan, an aspiring trend follower based in Germany:

Tesla - letting the big trends run

The recent price rise in Tesla is just another example where people who got into the uptrend, and been able to let the trend takes its course, have been able to profit handsomely.

Here is that chart. Based on my own entry and exit rules, entering on 13 December at the $363 level would have generated open profits of more than +22R as of now, with the peak being at over +31R in February. If ever you want an example of letting your profits run, this is it:

Experiencing the first big winning trend

When a trader starts adopting a trend following approach, there can be a steep learning curve in terms in truly understanding the ups and downs they will experience - both in terms of open equity and the emotions involved. 

Aspiring trend followers will more often than not go straight into a drawdown on cash equity. This is due to them adopting the basic principles of cutting losses short and letting profits run, combined with the low win rate that is typically achieved. 

My observation is that people quickly develop the need for good risk control and the cutting of losses, but by far the most challenging aspect of a trend following approach is the ability to remain faithful to your exit rules once you get into a profitable trade.

New testimonial

A couple of weekends back, while on the train to London, I posted this up on Twitter:

The traders I was going to meet were Craig and Aaron, and our catch up marked the end of working closely together for three years.

Following that, Craig has now kindly forwarded the following note:

Bitcoin and the evaporation of open profits

One of the most difficult aspects of trend following for inexperienced traders to accept is that you never get out at the extreme of a price move, and that there is always an element of 'giving back' a portion of open profits before an exit signal is given.

Generally speaking, the longer-term the trends you are trying to capture, the more wiggle-room your trailing stops need to give to current price action - this is to ensure that you are not stopped out due to a relatively minor retracement or price noise.

When starting to trade a new method or parameters, even if you have may be got the confidence of decent back testing results, there is still the big step into the unknown when it comes to dealing with the psychological element of letting profits evaporate when you have real money in the game.

This was brought home to me recently when discussing a long-term trend following system with an aspiring trend follower.

Learning from the Turtles experiment - what should you learn first?

The ad that started a legend.

An often overlooked aspect of the Turtle Traders experiment was not simply what they got told, but the order in what they got told. We can piece this together from the various writings about the experiment, including that of the Turtles themselves.

"Rich and Bill first taught us the foundations of basic gaming and probability theory. They explained to us the mathematical basis for money management, risk of ruin, and expectation" - Curtis Faith, from Way of The Turtle

It is also known that, while a commodities trader, Richard Dennis preferred not to read economic or crop reports - his preferred reading was Psychology Today. So I think it would be fair to say that (whether it was directly done or not) there was some basic trading psychology covered during the training period.

From theory to practice - marching to your own beat

Yesterday I was asked an interesting question by an aspiring trader based in India who I have corresponded with for several months. I know he has eagerly been collating a lot of knowledge and information from a number of traders and resources over this period of time. Now he was basically asking me:

"How can I put all my trading knowledge into practice?"

The answer to this is a simple step-by-step process, which can be used by anyone in a similar position:

Discount offer - 3 days left

A quick reminder that the discount offer for 1-2-1 training or mentoring expires in 3 days.

Be part of our team of like-minded traders, and use the timeless principles of successful trend followers and Market Wizards.

Those who do not have the desire to succeed, are not committed to put in the necessary work, or who do not want to learn to think for themselves with a trend followers' mindset need not apply.

Discount offer - 1-2-1 training and mentoring

To coincide with the commencement of the new trading record, I am running a discount offer for both 1-2-1 training and mentoring.

The prices for both these services has been reduced by 20%, and the offer runs until 14 November 2017.

For more details, please go here.

Some thoughts on differing trend following performance

Even if you adopt a trend following method, the nature of the price action in the markets traded will affect the performance that different trend following methods can achieve.

Thanks to Michael Covel's excellent book on the Turtles, we can review the performance achieved by those traders*. And we can see that, even though they were all looking at the same basket of instruments, the traders achieved wildly differing results.

Jack Nicklaus and trading - part 2

One of the most popular posts on this blog is 'Jack Nicklaus and trading', where I listed a number of quotes the Golden Bear made over the years. These should have a particular resonance when placed in a trading context, be it your own approach to the market, or the psychology involved.
Below I've pulled out a few more of Jack's quotes, which again may require some thought on your part, but the underlying message can easily be applied to trading.

Trading in the Zone - and some recent setups

While away for a recent holiday my reading material consisted of two classics by Mark Douglas - The Disciplined Trader and Trading in the Zone. For many Trading in the Zone this is the book that brought trading psychology to the masses.

Trading and the One Minute Manager

I've talked in the past about how I read books not necessarily related to trading, which can help you - one such example was Dale Carnegie's How to Stop Worrying and Start Living, which I wrote about here.

Another such book is The One Minute Manager. Originally published in the early 1980's, it became a business classic with over 15 million copies sold. Updated last year, can the The New One Minute Manager help your trading?

Lets look at the three 'secrets' discussed in the book:

New testimonial from Germany

Julian is trend following trader from Germany who I have worked with over the last couple of years. Here is his testimonial which he kindly forwarded:

The concept of acceptance

A critical part of developing the correct mindset in trading is grasping the concept of acceptance.

I first came across this from reading the books of Bob Rotella, a sports psychologist famous for his work with a lot of top class golfers. His first and best well known book in this area is Golf is Not a Game of Perfect.

The reality of a losing streak

As the various metrics and graphs here show, performance has been pretty poor over the last four months or so.

The reality, however, is that you have to accept that markets move from trending to non-trending phases. In that period, the markets have continued to show a potential disconnect, even if some are at or close to all time or multi-year highs. Market conditions have not been favourable for my particular style of trading, and my preferred timeframe, for most of the year.

No one like a run of losing trades. Yet they have to be expected.

Starting using a trend following strategy

I can pretty much guarantee that the first thing anyone implementing a trend following strategy will see is their cash equity levels dropping. Why is this?

Letting profits run

A trend follower never knows how long a trend will last. The old trading adage "Cut your losses, and let your profits run" is hard for inexperienced traders to follow. All a trend follower can do is control his (or her) risk, enter the trades at the appropriate entry points, follow their stop placements and see what happens. The trend may last a few days, or (hopefully) several months.

Psychologically, trend following is difficult to adhere to. I have found myself bailing out of profitable positions way too early, partly to bank profits, but mainly when I have been scared of a reversal, usually in the general market indices.

The 90:10 paradox

It is generally estimated at that 90% of all new traders lose their capital within a year.

In my experience, 90% of traders concentrate their efforts on their stock selection methods, rather than either their risk management or dealing with any psychological issues.

Coincidence?