Looking for a Trend…
Feedback in from a reader:
What I am unwilling to do is to take something as a truism just because someone says that is the case. Of course, your counter would be “Look at the results of the “Great Traders” cited in your book; however, I could point out that the same rationale could be taken with, say, golf; look at Tiger Woods, or Ben Hogan or Sam Snead - and my response is that the exception doesn’t prove the rule - there are some standouts in any endeavor, and that doesn’t mean that the “common man” is going to be successful just because there examples of golfers following a certain methodology. I also can comprehend the concept of trading a trend, together with the prerequisites of money and risk management. Obviously, the later two points - money and risk management - are not necessarily unique to a trend following system. Nor for that matter need the systematic approach be unique. Where I have yet to read in your writings, both the book and your web site, is the “how” of finding trends to follow. Without fundamental research, it would seem haphazard to just choose a stock, or commodity, or whatever instrument, and hopping for the best that a person has picked the right vehicle. As Mr. Seykota has pointed out, any trend is a measure of the past, and there is no such thing as the future. I don’t buy that, but that is what his view is. What does seem likely, is that the so called “great traders” have through trial and error, experience, or gut feel, or intuition, developed a “feel” for the markets they are trading day in and day out, and are thus able to at least identify the most likely candidates to pursue. BUT, that ability has come with experience and knowledge of the markets they choose to trade; I would equate that with fundamental research. You call it what you will. Of course, an approach would be to “shotgun” the situation by diversifying to the point that one has covered all, or a significant number of, markets so that some are bound to go up if one is going long, or down in price if one is looking to go short. That doesn’t necessarily prove the efficacy of the system; it does prove that “chance” can prove you right given enough opportunities. The larger traders with higher capital can afford to spread their bets since they have greater capital amounts. The smaller capitalized trader either would have to significantly reduce the number of markets traded and/or place very small bets in a number of markets. It would seem that if any of the above is a reasonable analysis, then a very important part of trend following is diversification. And in so doing, chances are that at least one or more of the chosen markets are going to trend in the direction you hope for. If you can point me in the direction of any literature or whatever on the “how” and mechanics of how to find a market to follow the trend, I should be most appreciative. I apologize for the length of this. Thanks very much.
p. 227 of Trend Following goes right to your desire to pinpoint a trend. I agree with Seykota.
