Speculators are not the bad guys:

“Some people think of speculative traders as gamblers; they earn too much money and provide no economic value. But to avoid crises, markets must have liquidity suppliers who react quickly, who take contrarian positions when doing so seems imprudent, who search out unoccupied habitats and populate those habitats to provide the diversity that is necessary, and who focus on risk taking and risk management.”
Richard M. Bookstaber
AIMR/CFA Institute

We can’t avoid risk. It doesn’t go away. Consider:

“Markets are an evolving ecology. New risks arise all the time.”
Andrew Lo
CFA Magazine

The key to ‘risk’ is to make sure you have a plan to deal with the ups and downs before you start taking those risky behaviors.

Ken Hoover writes in IBD:

“In his day, Jack Dreyfus was head and shoulders above every other mutual fund manager. In the 12 years he ran Dreyfus Fund, it returned 604%. That was 102 percentage points better than the next best fund. The Dow Jones Industrial Average was up 346% in the same period, according to a 1964 Life Magazine article published at roughly the time he stepped down as fund manager. How did he do it? He read charts. “A stock would be middling along for a while, then it would bust out on the upside. That was usually pretty bullish,” Dreyfus said. That’s when he would buy. Dreyfus will be 91 in August. He still goes to his office overlooking Central Park in New York every day…”

Be careful when you hear the word ‘chartist’. There is no universal definition. Some folks think it means looking at a chart and making predictions. Others properly see it as technical trend followers do: another way of describing reacting to ‘price’ movement.

“The only two tests of a really good trading book are: Will it help you make money? Will it help you cut your losses. Trend Following passes both tests with flying colors. It has a clarity that is compelling. While it discounts what I regard to be the useful role of macro analysis in understanding the origins of trends, it nonetheless reinforces the most important rule in sound trading — trade with the trend — in a way that triumphs. Last take: If you are a quote junkie like me, the quotes alone are worth the modest admission price.”
Peter Navarro
Professor of Economics and Public Policy
Graduate School of Management
University of California, Irvine
Author of When the Market Moves, Will You Be Ready?

Millburn Ridgefield Corporation offers on their site this view of correlation:

Including the Millburn Diversified Portfolio in a portfolio of traditional investments, such as U.S. stocks, U.S. bonds and international stocks may bring the substantial benefits of an attractive return, as well as added diversification. This diversification benefit is observable anecdotally in the adjacent table of annual returns (in which Millburn frequently had high returns in years where traditional assets performed poorly), and statistically in the nearly zero correlation of Millburn’s returns with those of traditional assets.”

Depending on your objective, trend following trading offers additional benefits beyond absolute returns.

“On Enron Web site: ‘Most of the things we do have never been done before.’ The most dramatic of those “things” involved turning a $90 per share blue-chip company into a 25 cent per share pile of dust.”
Steve Zwick
Futures Magazine

Brett Steenbarger recently released a great checklist for traders: PDF.

“…although it’s important to have an effective trading methodology, it is equally important to develop a methodology to determine how much capital to risk. A trader that risks too much increases their chance that they will not survive long enough to realize the long run benefits of a valid trading strategy. Risking too little creates the possibility that a trading methodology may not realize its’ full potential. Therefore, while a positive expectation may be a minimal requirement to trade successfully, the way in which you are able to exploit that positive expectation will largely determine your success as a trader.”
Dave Stendahl

“Reasonable people adapt themselves to the world. Unreasonable people attempt to adapt the world to themselves. All progress, therefore, depends on unreasonable people.”
George Bernard Shaw

David Kathman of Morningstar.com recently offered:

“Naturally, every investor would like to know what the market is going to do. But world financial markets are incredibly complex systems, with millions of people all trying to gain an edge. Lots of those people try to predict where the market (or various segments of the market) will go…the records of prognosticators…on the whole, pretty terrible. William A. Sherden’s 1998 book The Fortune Sellers goes through a grim litany of studies and anecdotes that illustrate what a bad job even the “experts” have historically done at predicting economic and market trends. The experts who most accurately predict inflation or interest rates one quarter are just as likely to be among the least accurate the next quarter. Elaine Garzarelli made her reputation by predicting the 1987 stock market crash, but then made a string of wrong market predictions over the next decade.”

Wise wisdom? Of course. Do people follow it? Not exactly!

Interesting read from The Washington Post on “choice”: PDF.

“Michael Covel’s book is the definitive guide to trend trading. Backed by real world results from some of the biggest and best money managers in the United States, his book will put you on the path to successful trend trading.”
Larry Connors
CEO, TradingMarkets.com

Laurence A. Connors is the Chairman and CEO of The Connors Group, Inc., a financial markets information company that he founded in 1998 and which operates the TradingMarkets.com website. He is also the Managing Partner of Connors Capital, L.L.C., a private investment company. Mr. Connors has authored a number of top-selling books on market strategies and volatility trading.