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WB Trend Following Cup and Handle

Weibo is a classic example of a GREAT Trade. First off Weibo was fundamentally strong

wb3

You can see the classic cup and handle breakout on WB
wb

Furthermore depending on what type of trend following investor you could have added to your position. When pyramiding is only important to be prudent. Would not suggest adding more than 10% or possibly 20% on pullbacks…or return to test 50 day moving averages…or break out to new highs….

Patterns like WB happen all the time. We need to study charts in order to better learn trend following.

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EU economy and gold trend

EU economy and gold trend

Since the Brexit vote, the European Union has remained fragile economically with fears of possible future exits. After a successful Brexit vote countries such as Denmark, France and the Netherlands are feared that they may also initiate exit processes from the EU. This definitely puts the EU at a very uncertain situation economically, leading to many investors also shifting their wealth into commodities and trading in precious metals such as gold. The price of gold has shot up by about 45% since the year began with much of the gains in value made post Brexit due to the uncertainty in the EU economy.

First Chart

During periods of economic volatility, investors always prefer putting their money in safe havens; and commodities provide the store of wealth that the investors look for during such times. Among the most preferred commodity for value preservation when markets are in turmoil is gold. Depending on the risk appetite of the investor, they may buy gold at the earliest sign of market instability or wait until the actual volatility begins in order to run to safety. The two scenarios have played out in the gold market this year whereby, the uncertainty at the beginning of the year buoyed up gold prices; while the Brexit sparked the rise in the prices even higher.

EU financial markets affected by Brexit

Since the Brexit, the sterling pound has a lost about 10% of its value to the euro. With this currency depreciation, exports from the United Kingdom are expected to be relatively cheaper and hence boost the exporting sectors and inbound tourism to the UK. The Bank of England is however very cautious on every economic decision it is making currently in order to prevent a plunge into a recession. In its recent monetary policy statement, the BOE cut its interest rate to 0.25% in a move to encourage commercial banks to increase their lending into the economy. The expected result is that with increased money supply, demand will rise and prevent any deflationary outcome across the region as a result of the Brexit. The stability in the UK is then expected to translate to a stable EU during the transition period.

Second Chart

The BOE intervention into the UK economy through a rate cut had a positive effect on the stock market and a negative impact to the bond markets across the EU. After the Brexit vote, the FTSE 100 dropped by about 3.15% due to the referendum outcome shocks. However, after the Bank of England cut its interest rate, the FTSE 100 index went up by about 1.6%. This is an expected result since when the interest rates are lower; the bond market becomes less attractive due to lower returns. Investors that have a high risk appetite then shift their money into the stock market, which is riskier but has potential for higher returns beyond the low interest income from in the bond markets.
The long term effect if the Brexit may not be very clear at the moment. However, in the short-run we expect the gold market, stock market and commodity markets to continue gaining; as the bond markets lose and the sterling pound depreciates against other major global currencies.

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The Presidential Election & Volatility & Trend Following

A colleague sent me his update on his trading and included his views on the potential volatility with it’s impact on Trend following due to the US Elections…

PRESIDENTIAL ELECTION
This is probably the most interesting and unpredictable presidential election in our lifetime. It will come down to who will win Florida, Ohio, N. Carolina, & Pennsylvania.

Regardless of who wins – they’ll inherit a huge mess:

Unemployment of 9.7% (U6)
Over 45 million Americans now in Poverty
43 million American on food stamps
94 million who have dropped out of the labor force and no longer look for a job. This is why unemployment has dropped, it doesn’t count those who have stopped looking for work.
A 50 year low on the Labor Force participation rate of only 62.8%
Record low home ownership rate
Riots in the streets
Systemic Poverty. We have spent over $22 TRILLION on the ‘War on Poverty’. Apparently we’ve lost.
National debt has doubled in the last 8 years and is at $19 to $20 Trillion dollars. Much of this debt is short term and costs the Gov’t over $200 billion/yr of the budget. A spike in interest rates could easily double or triple the payment. Hence the Gov’t pressure to keep rates low into eternity.

What does all this mean for Alternative Investments & trend following? Stocks will eventually run low on buy backs and cost cutting, therefore the returns will shrink. Should Mr. Trump win, the 15% Corp tax rate he proposes would be a huge winner for the economy and could be a game changer. Hillary has said she’ll raise taxes including raising them on the middle class and continue with most of the current policies in place. Regardless of who wins volatility like we haven’t seen for years could manifest in a dramatic fashion.

What do you think?

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Trend Following Leading Stocks AHS

In this recent example of a leading stock AHS for Trend Following

You will notice there are two entries at two occasions. The two entries are a W pattern and a Livermore shake out plus 3. The W pattern is a low and a lower low and look to buy the high of the first low as demonstrated. The Livermore Shakeout Plus 3.

ahs

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Hitting New Equity Highs and Then…. Trend Following

August has not bee overly kind to trend following CTAs, myself included.I finally after a long struggle was hitting new highs in equity. I told one of my potential investors, it does not mean anything as this is a long struggle and similar to a marathon. Trend following takes a very strong mindset based on determination and the will to continue regardless how tough it gets. As David Druz wrote in my book
The Bible of Trend Following

Trend Following is getting knocked down and getting back up…Sounds easy right, nope…After getting back up…getting knock down again, and guess what, Having it happen once again, getting knocked down!

This simple statement accentuates trend following. This is why when I teach, I stress the emotional aspect. Trend following in itself is rather simplistic. Prices go up and we buy…prices go down and we sell….however there are so many aspects such as risk per trade…correlation etc….

Bottom line of my ranting…Trend following takes a great deal of emotional fortitude as well as humbleness. The markets are unforgiving. Once you think you are getting out of a draw down…boom…your equity curve swings….

This is the reality of trend following. More so the last several years have been the toughest I have ever seen. No one rings a bell…however with all of this money printing at some point I personally believe we will see rampant inflation that most are not expecting.

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Trend Following Indicator For Metastock

I have been receiving numerous requests for my Trend Following Indicator. It is coded for Metastock. I have been a metastock user since 1994. I have not found another platform as easy to use as Metastock…

You can note the coloring showing trends all based on moving averages.

metastock

ara1

araa2

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Paul Tudor Jones- Firings – Trend Following

Yesterday on CNBC there was a piece about Paul Tudor Jones laying off approximately 20% of his staff.

The question that pops into my mind is it that Paul Tudor Jones is just too big…or have the markets just been too tough. In all of my career, I have never had such a rough period. Many Global Macro guys as well as CTAs – Commodity trading Advisors have struggled since 2011. If I look at a rolling 5 year period , only small CTAs have profited. Most have gone through very tough draw downs.

John Henry the legendary Trend follower closed up his shop over the last years. Many called for the “Death of Trend Following” Is Paul Tudor Jones another nail on the coffin?

I doubt that very much. What I do not doubt, is how emotionally draining and how tough trend following can be. That is why most do not succeed. It is easy to quit. It is not easy to show up and put on trade after trade in the face of adversity…

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Rothschild Buys Gold and Sells shares- Trend Following

Lord Rothschild who is the chairman of RIT Capital Partners, is rather pessimistic on the financial markets and has moved to reduce the trust’s exposure to quoted equities from 55 per cent to 44 per cent since the start of the year.

Some of the proceeds have been used to buy gold and other precious metals, which at the end of June accounted for 8 per cent of the £2.8 billion portfolio.

In the trust’s half-year results, released yesterday, Rothschild remarks that ‘we are in uncharted waters’ due to ‘central bankers continuing what is surely the greatest experiment in monetary policy in the history of the world’.

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China ETF Trend Following

The old saying I say all the time…you want to buy the strongest. Chinese ETFs currently are the strongest based on Relative strength. This is confirmed by the moving averages. One could simply buy the breakout…in this case 70 day high…filtered by being above moving averages. The stops also can be moving averages or average true range. The first trade did not work…however the second so far is trending along….

Sorry folks and all those who like complicated. This is very simple and takes very little time.

china

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Taking Trades You Think will Not Work- Trend Following

I know this first hand….Taking Trades You Think will Not Work Been there and over the years have grown from it. I hear it all the time from traders and trend followers who use an automated algo systematic way of trading.

One must realize as I realized…that we do not know the future….that anything can happen….that we must be consistent when following an automated systematic trend following system.

Once you start second guessing your system you are doomed. You need to internalize that your profits are made over a very long serious of trades over years.

Try to keep this in mind when trend following.

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