Yes, it is a fantasy island trading strategy that doesn’t work.

Let us not confuse information with knowledge. “Getting trend following” as a principle requires a leap into the unknown. One has to be truly comfortable not knowing. But that is not the point; the point is whether, having grasped this prerequisite information, a person is psychologically fit enough to “get it” and put it to use. Obviously, this Turtle fellow never got it.

That Turtle should know better than over-trading because of lack of discipline and a lack of action. If there is no potential trends unfolding then you don’t trade. A pro Poker player doesn’t play inferior hands. Only amateurs play sub-par hands, looking for action and excitement. They end up collecting a series of small pots and then get blown out by the pro on the first big pot.

Mark, that comment is coming from a Turtle. Considering the wisdom of my books, his words are off.

As Michael notes in his last comment there are other ways to make money in trading. The one piece of advice I give new traders is find what works for you and make it become part of you. This will take 1000 of hours of study and hard work. There are no free lunches in trading. Trading for me is a pattern recognition numbers game period. If you trade a system that you don’t believe in 100% your month end statements will reflect your lack of belief and confidence. I speak from experience.

My best to all young traders and the old ones like me as well LOL.

Too bad for the short-term folks.
Warren Buffett To Endorse Short-term Trading Regulation
http://www.zerohedge.com/article/warren-buffett-endorse-speculative-trading-regulation

Buffett is a great politician — whether you like his self-interest politics or not.

Buffett wears diapers, who cares what he thinks. Michael is right, it’s all in his self interest. This is just another case of people disliking something they don’t understand or know nothing about. Why can’t the sissy value investors ever be the source of the witch hunt? Short term traders are the ones that made the markets function!

It is fascinating ‘trender’ especially when many of the original Turtles have continuous track records back to 1984. The Turtle in question with new trading ideas doesn’t.

Shorter term trend following can work in the right market conditions-whats the difference between getting a 500 point winner on a 100 point stop over 5 days (short term swing) as opposed to a 5000 point winner on a 1000 point stop over 5 months assuming both risk 1% of capital in both scenarios?

Muhammad, you answered your own question. The risk/reward ratio, at face value, is the same at 5:1. But execution accuracy, transaction costs and profit potential decrease the mathematical edge each time you decrease the time-frame of your trading entries/exits.

Trading within smaller time-frames while executing a trend-following strategy sounds great in theory and it can also help you from feeling boredom, but it doesn’t work. I have tested many different models and even tried cheating by curve-fitting. Even so, it doesn’t make money over the long run.

When you let nature run it’s course over the long-term, beautiful things transpire. When you water your plants every hour, you’ll likely end up killing it.

Sounds like he is just bored and likes the idea of sitting at his monitor. He just needs a hobby! Maybe fishing or golf.

Jad, my focus is on the truth and I don’t apologize. Weeding through the characters and charlatans out there, to try and get people to see how it all works, drives me. Frankly, in this line of business it is useful to have opponents such as efficient market theory, buy and hold, wayward turtles, Maria Bartiromo, Niederhoffer, LTCM, Buffett, etc. They have all been useful and instructive over the years.

Jad, I don’t think that you properly understand that there are many, many items of interest in my (2) books and on my websites that would have never seen the light of day if not for my efforts. How are people supposed to have this philosophical view you have about the truth when they don’t even know what the truth is? I don’t agree with you at all. In terms of a wayward Turtle, you are the one attaching emotional words and meaning. I am somewhat puzzled why you are concerned about the emotional well-being of the leader of a money management firm that was permanently barred by the government versus attaching your empathy to the clients who were conned.

“Trend following works on ANY time frame if you have the required skills to actually implement it properly.”

My same response as above. Evidence!

Here is a useful metaphor. If you drive 80mph to a town that’s 160 miles away, you get there in 2hrs. But, if you drive 160mph and get there in 1hr, and you somehow manage to survive, does that mean it’s the right thing to do? And what are the chances of surviving long enough to show a decade worth of performance data? In the long run, I’d bet against such behavior any day. The way to go fast is to slow down, keep a constant speed and maintain the long view.

p.s. the more frequently you trade the faster you go. Back-test to get a feel for the changing dynamics of your system as you go faster and faster. But then again, I doubt if short-term traders mean the same thing as trend followers in using the term “system”.

I’d like to weigh in here…

From a theoretical standpoint, the tendency of the market to trend should be absolutely no different regardless of the time period observed. I say this because market movements are fractals: if I were to show you 100 yearly charts of different market prices and 100 daily charts, there’d be no way for you to tell which was which. Therefore, if there’s an edge in trend following (for which I believe there is compelling evidence), there MUST be an edge in shorter-term trend following as well. (For further reading on this “markets as fractals” concept, please see Benoit Mandelbrot’s “The Misbehavior of Markets.”)

From a practical standpoint, I understand the thinking that transaction costs pose a high hurdle, but I don’t think it should discourage anyone from trying. If the average trend following trade yields 15%, and you’re risking 100 ticks (which would probably be an EXTREMELY short term system) you’re still expecting to yield a 15 tick profit. Personally, I pay less than $4.00 per round turn, so each contract costs less than half a tick. If you assume a tick or two of slippage (which may be high with small size), you’re still looking at 13 or so ticks per trade. A casino expects around 2 and has about 1 billion times the overhead a trader does.

Which brings me to my final point. Casinos are constantly at risk and bet with a minuscule edge, yet the thought of a casino in a “drawdown” is laugh-inducing ridiculousness. Why? Because casinos bet frequently enough (1000′s of times a minute) that what we would call trading profit/loss, they would just call revenue. (I realize that everyone understands this intuitively.) My point here is that the more frequently you make a positive expectancy bet, the more you move from the concept of profit/loss (or “returns”) towards the concept of revenue. This has two implications relevant to this conversation. One, as others have mentioned, this stream of revenue is certainly not limitless and therefore scalability will absolutely be limited. And two, since it is a stream of revenue, and since people like revenue, you will undoubtedly have competition. And since, as mentioned, scalability is severely limited, as a trader it is HIGHLY in your best interest not share your profitable system with anybody else. What I’m trying to say here is that anyone who has developed a short-term system where PnL approaches revenue is certainly not going to be advertising it. Therefore, I’d be hard-pressed to imagine anyone in the world providing any sort of detailed records as to how he draws revenue out of the market. However, this lack of detailed records should not serve as “evidence” or “proof” that such a system cannot exist.

CY, I find that i receive similar responses from teachers and other non-traders. I understand the excitement of having five monitors with a lot of flashing lights and making a lot of money every single day. It is glorious in theory.

Also, I do not wish to see under the hood of a how a profitable short-term system works, but rather an audited record of daily and monthly results. I agree that strategies like these can work from time to time, but over the long haul they do not seem to survive.

Here is a simple answer I like by Michael from turtletrade.com:

Q: What about short term trading? Isn’t short term less risky, and therefore you don’t need money management strategies?

A. Short term trading is not, by definition, less risky. Some people may mistakenly apply a cause and effect relationship between using a long term strategy and the potential of incurring large loss. They forget profit and loss are proportional. A short term system will never allow you to be in the trend long enough to achieve large profits. You end up with small losses but also small profits. Added together, numerous small losses equal a big loss. When you trade for the long term, you have a more positive expectation in terms of the size of the move. In the big picture, the larger the move, the larger the validation of the move. If you were trading some short term pattern predictive system you would never be able to participate fully in the big trends. Big trends make the big profits.

Mel-

I find it interesting that you often hear from teachers that no one is ever going to teach you a way to pull revenue out of the market. Wouldn’t that be self-contradictory? I will work on such a system and provide results if successful.

Trender-

I understand what you’re saying about casino games having a stable distribution. This is why a trading system would have to be built to withstand (or take advantage of) the constantly changing distribution. I’m not at all recommending “fading” markets or trading from a negative gamma perspective. (I would think of these as stable distribution strategies.) I also think that a short term TF strategy would have rather extreme and sudden downturns (If you’re wagering 2% of equity per trade, you could be down 10% in a matter of minutes…most people can’t handle that.) However, these downturns would serve as a barrier to entry and ultimately be the source of the edge.

Jad-

At 1 cent per round turn, I imagine you’re talking about stocks and not futures.

All-

All I’m trying to say here, guys, is that I don’t buy the argument that short term trend following is impossible. I think its theoretically very possible. I also think it would be just as emotionally traumatic as long-term TF (if not much more so.) It wouldn’t be sitting in front of a computer and pulling in risk free money all day. I also think that since it would be highly unscalable, you’ll never hear someone boasting about such a system.

Michael: I want to thank you for establishing this forum, done less out of altruism but a natural self-interest and directed pursuit of personal passions. Well done. In this instance, this spirited conversation is both interesting and educational. As to the author of this alternative to boredom or proven profitable strategies in trend-following as espoused by Richard Dennis any many other speculators, I wish him luck. The questions to be answered, empirically may be: (1) Are you getting what you want emotionally out of the experience and the markets? (2) are you profitable? That is for each individual to determine. If I may volunteer one position I believe in, the common element for all stories of “success” (achievement of a specific goal or of material acquisitions others in present society considers “success”) is that deliberate practice was undertaken over a considerable period of time. Now if you’ll excuse me, I’ll resume my personal pursuit of deliberate practice in my trading..!

“Howard has an instinctive feel for the direction of the markets, borne of a lifetime of intense study of interest-rate, currency and commodity price movements, say traders who have worked with him.”

I am not saying these people don’t exist, but I am saying the path to replicating a fundamental trader’s success is far less clear (or doable) than emulating a trend follower’s path.

That is just silly talk by a journalist. Howard makes a lot of money by entering a market in the morning in serious size and bullying it to trade higher before an annoucement, and exiting in the afternoon just before. I have see this so many times. There is no such thing as “instinctive feel for the direction of the markets”. This what they would like you to believe. He also places huge short term bets on interest rates and the shape of the yield curve. His edge is his disciplined exits if a trade looses money. He can change opinion about a market so many times in a day. I know this because I trade the markets heis active in, and I smell him and his cronies when they are in.
I agree with you Mike. It is difficult to emulate a trader’s success when you cannot break down how he trades on a spreadsheet. Which is why trend following is an easier road to trading success. But the problem is most people cannot handle the volatility and the losses. That is why making it systematic is your best bet. Still, most people who allocate money to hedge funds drank the Kool Aid, and believe the bull that you can have have high returns and low vol. So they go and invest in Madoff, GLG, Atticus, LTCM etc…It will never change, though I respect your efforts to raise awareness.

The best thing to do is to simply backtest whatever market you want to trade and see which time frames have historically worked best. Some work better short-term, some work better long-term.