Russell Sands - I Am a Turtle

[Iron]

http://www.youtube.com/watch?v=wbT_N6mZ ... re=related

Trend following 101

[James1st]

Two traders go for a meal to a steakhouse and order the king size steaks. Whilst trying to cut the huge steak one of the traders let his knife slip from his hand and it flew up into the air. Seconds later it fell point down and painfully pierced his shoe. The other trader says "why didn't you move your foot?" to which the first trader replies "I thought it was going back up".

(Jack Schwagger)

[Iron]

Hi James,

I was thinking about picking tops and bottoms today and thought of your post. Whilst many people advise against going counter-trend with financials, I think there may be something in the approach.

Take a chart like those on this page: http://www.tradejuice.com/technical-ana ... op-AI.html. The market has gone crazy over a few bars and then suddenly retraces sharply. It might just be a temporary retracement, but it seems uncanny how often such moves precede massive trend reversals (at least on Betfair).

What are your thoughts on this?

Jeff

[superfrank]

here's my two penneth Jeff...

while trend can be very important i don't think you can trade financials successfully these days without at least keeping an eye on the fundamentals.

take the 6 weeks or so before it became clear that the FED would do QE3... opposing sharp moves in either direction would have paid healthly dividends as many markets were range bound. when it became clear that QE3 was nailed on stocks shot up (and then some more when the announcement came as they promised unlimited QE).

normally one might have expected stocks to keep rising, but economic data is still very poor despite the central banks' efforts.

i suspect that the best pros (and the investment banks who get all the news/inside info first) take a view on the fundamentals first to decide on a trading direction and only then dig out the charts for a bit of technical analysis.

imho the current period is probably one of the most difficult times to trade. historic relationships between bonds and stocks have broken down because of, what is essentially, market manipulation by central banks.

[Iron]

here's my two penneth Jeff...

while trend can be very important i don't think you can trade financials successfully these days without at least keeping an eye on the fundamentals.

Hi Frank

I beg to differ. The fact that trend followers continue to make excellent returns year after year shows that purely technical methods continue to work. In addition, I would say that now is a great time to be a trend follower, given that you profit whether the market goes north due to QE or south due to a market crash...

i suspect that the best pros (and the investment banks who get all the news/inside info first) take a view on the fundamentals first to decide on a trading direction and only then dig out the charts for a bit of technical analysis.

I've no doubt that some of them do, but not all. This guy doesn't: http://www.dailymail.co.uk/news/article ... -year.html.

When asked a question on fundamentals by one of the financial TV programmes ('Do you think we are in a fundamental cycle or are we in a bubble?'), he replied:

'It's not false modesty for me to say I don't know. I really don't know. I really do not have the gift of second sight.'

Jeff

[superfrank]

In addition, I would say that now is a great time to be a trend follower, given that you profit whether the market goes north due to QE or south due to a market crash...

eh? what trend is that then?!

try following every move and see where that gets you...

[Iron]

Here's the reponse of Ed Seykota to that point:

http://www.youtube.com/watch?v=LiE1VgWdcQM

Ed Seykota trained a trend follower called Michael Marcus (a market wizard). Michael Marcus trained up someone called Bruce Kovner, a former taxi driver who is worth $4.3 billion. The reason I mention the above is that Mr Seykota has been disparaged in this forum before, so I thought I'd make the point that his credentials are beyond question, lest he be dismissed as an eccentric good old boy!

Jeff

try following every move and see where that gets you...

[superfrank]

i've read all those Market Wizards books and these people all traded in one-way bull markets - a monkey could have made millions in those times.

you never quite answer the question... how can you follow a trend without first defining it?

[Iron]

i've read all those Market Wizards books and these people all traded in one-way bull markets - a monkey could have made millions in those times.

The trend followers have vastly outperformed the S&P for decades, so it's not the case that their Warren Buffet like returns were simply a reflection of the markets in which they operate.

you never quite answer the question... how can you follow a trend without first defining it?

The original question was a bit vague, in fairness!

A trend is a movement from Price A to Price B. I'm sure there are more elegant definitions out there, but that will do for now.

Here's an analogy. A publisher might publish 50 books. Ten might turn out to be bestsellers, or none might turn out to be a bestseller. It's impossible to say in advance which, if any, will pay for the losers. But one thing's for sure - if you don't publish any of those books, you're not going to publish the next Fifty Shades of Grey. So you carry on publishing books in the expectation that there will be a few bestsellers in the pack that more than pay for the flops.

Jeff

[superfrank]

no offence Jeff, but your logic is based on too much reading and too little trading.

the Average Joe reads any old trading book and it all makes perfect sense - yet only 1 in a thousand Average Joe's ever turn that "knowledge" into profit.