Stripping back our beliefs and subsequently our rules to their absolute basics, as trend followers, ideally we would want to be able to:
- generate an entry signal as early as possible into a new trend;
- exit a non-performing trade, if the new trend has failed, as soon as possible; and
- allow our position to run as far as possible on our chosen timeframe until that trend is invalidated.
Around those basic concepts people can follow pure price data or utilise technical analysis to 'formulate' their entry and exit rules.
As I've said before, I can be a bit of a trading heretic, and like to challenge some of the more popularly-held beliefs about how to trade successfully.
Below are a couple of those beliefs which I believe are worth further scrutiny - the use of multiple timeframe analysis and trend 'filters'.
In the run up to our baby boy coming into the world, I took steps to remain trading while allowing me to use less time monitoring the markets, positions etc.
I took the Turtles system 2 and applied it on a WEEKLY rather than daily basis. One or two other tweaks and I was done. Like my shorter term system, I have applied exponential moving averages as a trend filter confirmation.
I do not blindly follow the signals my trading software gives me. The chart of Travis Perkins (LSE: TPK) below gives a good example.
A sell signal was given near the end of April, however I did not enter the trade. The reason is that the previous low from mid March could act as support (I've drawn a red arrow on the chart to show this level). As you can see, the share price did indeed bounce off that level. I would have waited for that support level to be broken before entering the position.
