Bank shares

[andyfuller]

If you are predictive or reactive you have to take a view to enter a profitable trade. You have to decide to either buy or sell. If you don't take a view and either do nothing or both buy and sell you can not be profitable - it is impossible. So which ever way you trade I can't see how you can't take a view as you seem to be saying. If you can explain to me how you can trade without taking a view I am keen to hear.

So you won't be trading Lloyds as you don't have a view on what is going to happen, fair enough. But at some stage you are surely going to have to or have in the past taken a view on what the price is going to do in the future of a share etc. If you don't you will never place a trade surely.

That quote made me laugh, he says no one can consistantly predict anything and then goes on to say he relies on the fact that other investors are convinced that they can predict the future and he believes that is where his profits come from.

So no one can predict anything consistently yet he can predict that investors will remain convinced that they can predict the future.

He is trying to do exactly what he says in the same breath can't be done

[Iron]

If you are predictive or reactive you have to take a view to enter a profitable trade. You have to decide to either buy or sell.

You can toss a coin. If the market moves in your favour, stay with it till the trend stops. If it goes against you, scratch your trade quickly.

Let's say you were to map on a histogram every person's IQ score in the country (lowest to highest on the x axis, number of people on the y axis), you'll probably end up with the normal shaped Bell Curve, which represents normal random distribution: http://en.wikipedia.org/wiki/Standard_deviation.

Trend followers believe that markets don't conform to normal distribution, but have a fat right tail - see the charts on this page: http://www.trendfollowing.com/whitepaper/mauboussin.pdf.

If markets were completely efficient, trend following wouldn't work. Neither would scalping, for that matter.

So no one can predict anything consistently yet he can predict that investors will remain convinced that they can predict the future.

All he is predicting is that there won't be a general enlightenment anytime soon. There was a tulip mania in Holland in the 17th century and a housing bubble in the UK within the last decade. Just as it's safe to say that people won't stop committing crime in the near future, it's also safe to say that people won't stop making irrational, emotion-driven financial decisions...

Regardless of your style of trading, your Betfair profits ultimately stem from the fact that there are punters out there who think they have some kind of insight into what's going to happen in a race, yet the bookmakers' balance sheets show that the vast majority of them are pretty clueless with their predictions. So your profits, like John W Henry's, are due to people incorrectly thinking that they can predict the future!

Jeff

[andyfuller]

I will draw a line under this discussion Jeff as I know we aren't ever going to agree on it other than agreeing to disagree so I will save us both sometime

[Iron]

Andy

Fine.

Many people attack trend following, but you come across a logical refutation of the compelling empirical evidence that it works, I'd genuinely be interested to hear it.

I'd also be interested in hearing about any non-anecdotal evidence that support and resistance lines, etc work.

Jeff

[superfrank]

i used to develop computer models (that worked with historical diamond mine data) so that the company could forecast what it would have to sell in future months and years.

we knew from the historical data (based on what had come out of the mine to date and from similar mines in the past) what we were likely to find in each area of the mine - there were no guarantees, but it was much better than guessing.

analysis (both fundamental and technical) is useful because history tends to repeat itself.

Jeff, what about this edge? it was found because someone took the time to do the analysis. markets are not quite as random as you seem to think.
http://www.zerohedge.com/news/overnight ... lized-retu

ps. can you create a 'trend following' thread where you can post all the tf wisdom? loads of good threads have now been sidetracked to tf.

[Iron]

analysis (both fundamental and technical) is useful because history tends to repeat itself.

I agree. And tf is also based on certain repeating patterns of behaviour.

But whether that tells you how the market will react to next week's p&l annoucement, or what the market will do when it reaches the supposed resistance point of 100, or when the current trend will end, is another matter...

Jeff, what about this edge? it was found because someone took the time to do the analysis. markets are not quite as random as you seem to think.
http://www.zerohedge.com/news/overnight ... lized-retu

It might work. Couple of points though:

A. I'm sure there are trend followers who capitalised on these, er, price trends.

B. Long trends can end at any time. The fact that a price chart has been steadily rising for years doesn't mean that the bubble will continue indefinitely.

ps. can you create a 'trend following' thread where you can post all the tf wisdom?

No.

My views on the matter tend to generate more heat than light (even though they are based on sound logic and evidence - or perhaps because of that!). In the financial markets, it's the same. Trend followers are in a small minority (although they include some of the world's most successful traders), and they are resented by some of the traders who wake up at 5am to watch CNBC in the hope it gives them an edge.

Jeff