A good article on trend following trading (PDF).

An author from the Economist tries to make an argument against automated trend following in this article, but he apparently doesn’t understand the difference between high frequency trading and trend following. Further, he argues silliness as to why a trend strategy exists to begin with. An excerpt:

The main argument in favour of such trading is that it provides the markets with liquidity. But that liquidity may not be permanent. Hedge funds that exploit the approach can use a lot of borrowed money, so a squeeze on credit will cause the liquidity to dry up. That was one problem markets faced in late 2008.

Trend followers don’t trade to give the market liquidity. They trade to make money! The author continues:

Computers may not have the human frailties (like an aversion to taking losses) that traditional fund managers display. But turning the markets over to the machines will not necessarily make them any less volatile.

This guy really needs to learn about a subject before sticking his foot in his mouth. Automated trend traders don’t purport to eliminate volatility as they are smart enough to know it can’t be done! My book discusses this in detail.

I posted this recently. A response:

I hate the fact that banks can do it so easily on their risky investments as seen in Lowenstein article above.

Casino math (PDF) may be the most important wisdom you can know to be a successful trend follower. In fact, I feature much of this thinking in my documentary film.

People fond of the TurtleTrader story will like this memo (image) from back in the day. It became a core piece of my book “The Complete TurtleTrader.” In fact, that memo was first revealed in my book.

I had the opportunity to spend time with and interview trend follower Bernard Drury a few years back. Drury has done quite well as a trend trader and I hope to talk with him again in the near future! Some background (PDF).

I like the first few sentences here:

What are we smoking, and when will we stop? A nationwide survey last year found that investors expect the U.S. stock market to return an annual average of 13.7% over the next 10 years.

Just by buying and holding…I presume.

Great point. Not happening!

I am not about to stop blogging, but I do post quite a bit on Facebook too. Join me.

I was thinking about real estate tonight. Specifically, I was pondering where people will live now that we have seen “bust”. Consider:

1. Many modern American cities (i..e Vegas, Phoenix, Miami, San Diego) are filled with either empty (or soon to be foreclosed) condos. Many of these cities have zero “life” in them. Commercial space, retail and office, is open everywhere.

2. Many American suburbs are dying. Brand new homes, town homes and condos are empty or short sale specials. Strip malls built to supply the never ending suburban sprawl are dead or dying.

3. Office parks? Those are empty across the nation. Brand new 6-story office parks are dotting the landscape from Palo Alta to Fairfax, VA empty as empty can be.

4. Commercial retail? How many stores do you see empty or closed daily? I see them all the time.

Now what? Does this all point to denser city living and the abandonment of suburbia? The American dream still appears to be broke to me.