The Bible of Trend Following
|
Everything boils down to risk per trade. What I have seen in this recent bull( parabolic) stock market move was some of the high priced stocks had tremendous moves. Look at $GOOG $REGN $PCLN. Follow your trading plan…Risk less than 1% of your account size on a position, watch your sector risk…as well as your open trade equity. More so watch the market. I use exponential moving averages. When the $SPY is above them…I have a green light to try to buy break outs or retracements. All stocks retrace. Today I am looking at $ALK $REGN $SBGI.
Past Performance is not indicative of future performance
What, how can that be? You are telling me it is possible to lose money even with a manager who over long periods is profitable?
Yes…100%
I have seen it time and time again in my career now spanning close to 19 years. First of all trading is tough. There are no gurus or magic managers. Every manager has periods in which they lose money or go through draw downs. The way investors lose money even with these unique & profitable managers may happen with the following mistakes:
• It is Very Easy to psychologically to invest when a manager is having a good run. However as much as we are dealing with uncertainty buying drawdowns of managers who have gone through various cycles over decades can be a prudent concept.
• Too many investors “ Buy the Highs and Sell the Lowsâ€
• It is Very Easy to allocate to a Large Manager with Billions of Dollar under management ( but they are not perfect and can lose money also)
Simple Rules to Consider
• Managers who have experienced various market conditions over the years
• Liquid & Transparent- Managed Accounts
• Set a goal of 15% CAGR ( Compounded Annual Growth Rate)
• Doing the Uncomfortable: Buying the Drawdown
• Performing Strong Due Diligence
• Allocating no more than 5% of assets in anyone manager
• Accepting there is nothing perfect, no magic manager and even following these rules there still will be loses!
• Past Performance is not Necessarily Indicative of Future Performance
It Has Been a Very Challenging 2 Years for Managed Futures
For those that have invested in managed futures over the recent period, one word sticks out – TOUGH!
• Two Back to Back years of negative and sub performance
• Repeatedly Heard – Trend Following is DEAD!
• Received an Email – Find a New Line of Work!
• It is Never Easy!
• There are Always Losses & Long Durations of drawdowns.
The question is easily raised when will the sector return? The truth is no one really knows and as much as Past Performance is Not Indicative of Future Performance possibly we are at a new juncture? Natural Gas has been a strong performer as well as the stock indices in a bull move. To the contrary Gold has had a sharp selloff only to rebound sharply. The same can be said of the grains which caught some traders on the wrong side. Some shorter term traders however have benefited from this volatility while some longer term traders have been negatively impacted. The idea with managed futures is profits can be had on the long side as well as the short side. Depending on a manager’s time frame different results can occur.
Believe it or not, you only need several good trades over the year to produce positive performance. It is these outliers that no one expects. No one ever rings a bell when trends or favorable periods begin. The key is to be “Availableâ€. I have been investing in CTAs since 1994 as well as became one in 2011. Periods in which we have encountered over the last two years are not unique. As stated above, there are always losses and long durations of drawdowns. Possibly this environment can continue for longer than we would like. Then again, possibly with every contraction there is an expansion. Wouldn’t it be nice to buy a unique CTA who has been around for various cycles on sale?
Don’t we all love to buy low and sell high?
Cover of Business Week in the late 1970s before a major Bull Market
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE RISK OF LOSS IN TRADING COMMODITY FUTURES, OPTIONS, AND FOREIGN EXCHANGE (“FOREX”) IS SUBSTANTIAL.
Got taken out of three positions yesterday with my trailing stops…
past Performance is not indicative of future performance
Marc Faber likes gold and is buying more. Faber keeps on adding to his position monthly however he refuses to leave gold in the USA. He tells the story how in 1933 gold was confiscated by the US Govt in the Great Depression…He only wants physical gold, not the EFT GLD.
Firstly the vast majority of traders have no plan. They follow the news,CNBC or some guru whom they think knows the
answers. The reality is that no one knows the future or any answers. These traders who have no plan usually fail. The first step in attempting to avoid failure is actually putting to paper your complete trading plan. This clarifies your thought process. You need to think in terms of what to buy or sell…How much to buy or sell…as well as when to take a loss or a profit. If you do not have a trading plan you will not know any of these issues which are paramount to your trend following success. I became an AP years ago with one sole reason…to learn from others mistakes.
Learn from experience – look for high probability trades…look to “try” to risk only small amounts of your account on any trade…
Past Performance is not indicative of future performance
I invite you to come to hear my presentation at the Global Grain Conference in Chicago on June 19 2013
I received an email this weekend asking for assistance in trading. In the email, he stated trading is a side job in order that he can earn side money. If you really want to succeed, Trading has to be your passion and trading success must be your goal. Would you want a doctor whose side job is medicine or a lawyer whose side job is law? Probably not!
Trading success can be had for those who are committed, passionate, dedicated, disciplined and patient. Look at Mark Minervini a stock market wizard with 220% annual returns, he does not go on vacations. BTW he was a junior high school dropout. Why did he succeed? He had the attributes if being committed, passionate, dedicated, disciplined and patient
Trading and trend following should never be a side job in which you think you can pick up some extra money. Trend Following is not retirement in a box. You will have to work…You will have to explore your own emotions and psychology.
Trading success & extreme wealth= moderate returns + time+ compounding of money with a complete trading plan.
Past performance is not indicative of future performance
HOPE is a Four Letter Word when Trend Following
If you ever find yourself “hoping a position comes back” you need to immediately get out! Too many fall into this trap when trading. Small losses become big losses.
Some times…actually rare times do traders really succeed. The way they have succeed is by utter commitment and discipline. However those rare traders who reach the elusive goal of success have a hard time maintaining the commitment and discipline. Failing to redefine goals can limit continued success. I always refer to trend following as a marathon. It is never easy and is a major commitment. Think how many really are committed to marathons? Really not many. How many traders can continue when they have 2 years of trading and they did not make any money? VERY FEW…There are those of you who think trend following is easy..You read a book…or you take a course over the weekend and Shazam..You are a successful trader. Not reality. I am teaching several students and one was absolutely shocked when I showed him Bill Eckhardt’s trading record. How can the father of the famous Turtle Traders not make money not just in one year..but several years…How can that be? Well this is the reality…It is never easy…Even the unique commodity trading advisors who have survived over the decades are not promised a profit or a way to avoid a draw down. Things need to put into perspective. Trend Following is not for everyone…Trend following is not easy. It takes commitment and discipline. There are no short cuts. There are no short cuts even investing in successful trend followers. Trend Following is truly a marathon. Millions in up markets and down markets is encouraging but very tough in reality.
Past performance is not indicative of future performance
|
|
