What I love about trend following (Michael, I’m sure you touched on this in your book) is the calmness it brings to its practitioners. From day-to-day, with all the news (noise) out there, I can just sit back, relax, and know I practice a strategy that is geared for the unknown.

I disagree on the motivation Peter. True motivations can vary, and having a “crisis ready” strategy is key, but so are the numbers.

Why not add some stock market index futures to a futures portfolio because the usually do have a low correlation with a lot of other types of futures? Somewhere (maybe here) I read the Salem Abraham lost a lot his clients during the end of the tech bubble because commodity returns were low relative to stock market returns.

The two quotes you site from your book have always been my two favorite ones. These statements are some of the most epic and phenomenal words I have ever read. I remember coming across similar ideas in the early Market Wizards as a boy and being deeply affected by it. But your TF does justice to the principle by putting it in the right context.

A strange subject but deeply significant.

If one examines ones life honestly we find that we’re all deeply preconditioned, preloaded, to react to events and situations. No body does a damned thing, it all just happens and we conjure up all kinds of explanations for events and situations after the fact. This introduces deep uncertainty into the picture which is much closer to the truth and the realities of life. Such uncertainty creates trends and that’s what we’re trying exploit as TFs.

Just massively impressive numbers. One of your best posts yet.

Victor,

Psychology and Systems create outcomes. Whether an outcome is deterministic, random, or a matter of survivorship bias depends on the psychology, theory, statistical methods and systems involved.

Good trend systems are designed on the theory that peoples reaction to uncertainty are fairly consistent and manifest as trends over long periods of time.

One has to see the grooves of ones own conditioned thinking – ones system. To understand TF is to awaken from all fixed points of views, to have no ideas, to be comfortable not knowing. Only then is there direct perception(beyond theories and ideas) of what is real.

This is what the scientific method is about. TF depends on direct and continuous sensory observation of experience and/or experiment rather than resting on a priori reasoning.

Agree with Todd. Trend followers could literally turn off all the financial media noise and perform just fine. I developed my system for a high Calmar ratio (compound annual growth rate / maximum drawdown) and I sleep well at night regardless of the market action.

@Trender: “This is what the scientific method is about. TF depends on direct and continuous sensory observation of experience and/or experiment rather than resting on a priori reasoning.”

Very true Trender…When Newton proposed his theory of gravity, it was a revelation to the scientific community because it did not attemt to EXPLAIN gravity, but rather to describe it. Science has never looked back.

Similarly, TF does not attempt to explain (are the Gods responsible for skyrocketing wheat?…Was it something the Fed said?…). It merely describes and says, “This is the price action; take it or leave it!”

@DGDye, very nice. In fact it was this very distinction you point out that ushered in the enlightenment starting with Decartes, and Isaac Newton. No doubt the grounding of reason in experience was (and still is) a revolutionary realization. What mostly passes as science today is really the inverse of that(i.e. data mining, etc…).