The appendix of my book Trend Following offers some valuable contributions from:

1.) Bob Spear of Trading Recipes
2.) Paul Mulvaney of Mulvaney Capital
3.) Brett Steenbarger

Their additions added to the overall thrust of the book.

This excerpt from ‘The Learning Curve’ by Atul Gawande speaks directly to the importance of practice:

“There have now been many studies of elite performers–concert violinists, chess grandmasters, professional ice-skaters, mathematicians, and so forth–and the biggest difference researchers find between them and lesser performers is the amount of deliberate practice they’ve accumulated. Indeed, the most important talent may be the talent for practice itself. K. Anders Ericsson, a cognitive psychologist and expert on performance, notes that the most important role that innate factors play may be in a person’s willingness to engage in sustained training. He has found, for example, that top performers dislike practicing just as much as others do. (That’s why, for example, athletes and musicians usually quit practicing when they retire.) But, more than others, they have the will to keep at it anyway.”

Sources: Gerard E. Dallal, Ph.D.

Monthly commentary from a large Trend Following trader came across my desk today. They are now ready (after reversals in April) to benefit from rising interest rates and rising energy prices. Of course, they also remind the reader that they have no idea if the markets will continue in a beneficial direction. It all gets back to the idea that prediction is impossible and this trader honestly admits such.

The book Trend Following has made many of the bestselling lists at Amazon:

1.) New Releases: #10
2.) Investing: #20
3.) Investing (General): #10

Thank you for your interest!

I had conversations with two groups today. One group runs a fund that combines many traders together into a portfolio that aims for good returns, but less drawdown. The other group works with a trend following legend who shoots for absolute returns. Is there a right direction? Should you as a trader (or investor with traders) have multiple trading approaches combined or one great absolute return strategy? It is an interesting (and useful) debate. There will always be fierce arguments from each side for their point of view, but the choice ultimately comes down to what you want in your life and your performance.

You want to predict the market direction? Think again:

“It took me a long time to figure out that no one really understands why the market does what it does or where it’s going. It’s a delusion to think that you or any one else can know where the market is going. I have sat through hundreds of hours of seminars in which the presenter made it seem as if he or she had some secret method of divining where the markets were going. Either they were deluded or they were putting us on. I have seen many complex Fibonacci measuring methods for determining how high or low the market would move, how much a market would retrace its latest big move, and when to buy or sell based on this analysis. None has ever made consistent money for me. It also has taken me a long time to understand that no one knows when the market will move. There are many individuals who write newsletters and/or books, or teach seminars, who will tell you that they know when the market will move. Most Elliott Wave practitioners, cycle experts, or Fibonacci time traders will try to predict when the market will move, presumably in the direction they have also predicted. I personally have not been able to figure out how to know when the market is going to move. And you know what? When I tried to predict, I was usually wrong, and I invariably missed the big move I was anticipating, because it wasn’t time. It was when I finally concluded that I would never be able to predict when the market will move that I started to be more successful in my trading. My frustration level declined dramatically, and I was at peace knowing that it was OK not to be able to predict or understand the markets.”
Charlie Wright
Chairman of Fall River Capital, LLC

Trend Following Table of Contents and Trend Following Acknowledgements.

Readers have been asking what were some of the biggest lessons to emerge from the book research. A few that come to mind include:

1.) Short-term focus: There are many that simply do not understand the concept of risk or volatility. When they see a down month for trend followers these people think there must be a problem. The reality? Down months happen. They are expected. The more you risk, the more you make and the larger the drawdown. We still to this day see people not understanding the absolute return benefits over time.

2.) Richard Dennis’ students: Not all of his students were/are successful. In fact, some are failures by any measure. Interestingly, the reasons seem to go right back to a lack of discipline and or poor personal psychology, not the trading strategy itself.

3.) Long Term Capital Management: Trend followers were the winners to LTCM’s losing. The performance data almost looks like a direct wire transfer in the zero-sum game.

If this blog does it’s job over time it will be to further expand on the book’s topics and debates.

Trend Following is available now at Amazon.com.

Amazon has shipped their initial orders. Other retailers will also have the book. The publisher has started the second printing, but unfortunately the publishing world’s “just-in-time-inventory” doesn’t work great when there is strong demand!

If your local bookstore is out of stock of Trend Following, please do not hesitate to ask them to re-order. Most stores are extremely responsive in this regard. A swift kick may be needed for the less than helpful!

Ponder the statement:

“Statistics alone can never prove causality, but it can show you where to look.”

True trend following traders, if trading similar markets, will typically have very similar winning months and very similar losing months. A good historical example is the summer of 1998 (when Long Term Capital Management went bust). During August and September 1998 most trend followers had winning months. Interestingly, July 1998 was a losing month for most trend followers. Comparing monthly performance numbers of trend followers is best done through correlation analysis. Correlation, however, does not prove causality. It tells us where to begin the investigation. So when looking at correlations among trend followers, especially very large monthly gains or losses, it makes sense to look for the other side of the trade to better understand “why”.