Current trades update and more potential setups

In this recent post I mentioned a couple of potential set ups I was watching as well as including the charts highlighting some recently taken trades. Here is an update, plus a few more setups which I've added to my watchlist.

Trend following, absolute returns and controlling open risk

At its core, trend following is an 'absolute returns' approach. You only have to look at the high-octane monthly performance generated by the Turtles back in the 1980's to see that. But to achieve that, you generally cannot impose too tight a control over the levels of volatility you have to endure. That is the other side of the coin.

Trend following and the ‘V’ shaped reversal

Occasionally when utilising a trend following method you have to deal with a ‘V’ shaped reversal. This is where, after moving strongly in your favour, price decides to sharply reverse direction, before your trailing stop has had chance to 'lock in' the bulk of those gains.

This type of price reversal can be the bane of a trend follower. I know my own basic approach struggles with them.

Some recent failed trades

Here are some charts of three trades I've recently taken and which have resulted in two losses and one break-even trade. As a rule, I lose more often than I win (although I try to attain a 50% win rate) but the average size of my winning trades is historically at least double the average size of my losing trades, and which brings about the overall positive expectancy.

How to keep open equity risk in check

In my own experience, the biggest problem I've seen with relatively inexperienced trend followers is the question of stop placement in an open trade. 

Most trend following systems are used on commodities, FX and indices. I tend to trade stocks, but there is an added complication here in the effect of opening gaps, widening of spreads etc, which need to be factored in when looking at stop placement.

There is a secondary question as well - the risk to your trading account increases when a position goes in your favour. Let me explain.