On defining a trend, interpreting volatility and when to go fishing

Jesse Livermore aboard the Anita Venetian

"Your definition of trend is the smoothing method you use. The methods you use to define trend are entirely up to you, so you get to define trend any way you wish; everyone may have a different idea of "the" trend." - Ed Seykota.

Focus on your own trading and the trends you are looking to profit from

We know that markets can move from a trending to non-trending state, or vice versa, at any time. But as Ed Seykota says, there is no such thing as 'the' trend. 

Also, different traders will have different interpretations about the type of trend they are looking for - one person's long-term trend may be another person's short-term trend.

The important point here is that how anyone else defines a trend is irrelevant to your own trading and performance.

Trend following and Epictetus

The stoic philosopher Epictetus once said that “We have two ears and one mouth so that we can listen twice as much as we speak.”

In the world of trading however, plenty of participants seem to think they have two mouths and one ear. They aren't interested in listening; they are simply wanting to speak - often over the market itself.

Trend following - a simple way to playing the long game

Warren Buffet once said “There seems to be some perverse human characteristic that likes to make easy things difficult.”

A good trend following approach allows you to participate in the equity and other financial markets eliminating a lot of the difficulties.

Your basic rules will tell you:

• what to do;
• when to do it; and
• how much to risk.

You can trade 'parrot-fashion'. No opinions or predictions are required. You simply follow price, see how it interacts with your chosen entry and exit parameters, and only then do you need to do something.

Be objective and simplify

To paraphrase Monty Python, it may be stating 'the bleeding obvious' but trend following is a very simple concept. If a stock or instrument is going up, you go long. If they are going down, you go short. The only differences between trend followers as that they will have their own parameters which determine how early or late they get in and out of a price movement.