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Complacency in the Midst of a New Trading World – Trend Following

There seems to be massive complacency. Most market participants have forgotten the dark days of 2008. The Vix has reached multi year lows. The word today is leverage. Risk is fine. Yesterday we had the first down day of more than 1% in countless days.

The stock market basically got whacked yesterday. After opening higher it looked like the major averages would have another fairly quiet session with an upside bias. This has been the norm, dull and boring. The Nasd averages even broke above their recent consolidations which was very surprising. There was then a reversal and all the major averages sold off hard into the close. The losses were significant with the COMPQ falling 1.82% while the SPX declined 1.24%. The greatest damage was done to the small cap and the semiconductor stocks. The RUT and the SOX declined 2.71% and 2.36% respectively. All the major averages closed at their intraday trading lows, showing little buying interest as prices fell. Volume was much higher across the board and above average on both exchanges. Higher volume signifies conviction. This means that large institutional players were selling stocks and added a new distribution day to all the major averages. Leading stocks were hard hit. On the Globex now the market is still in the red.

All too many have been buying the dip. The stock indexes could recover, but the kind of reversals we saw yesterday are often seen near inflection points where trends can change.
This is what trend following is!

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Bloomberg- Where Have Gone all The Trend Following Returns

Guess, I am not the only one asking where the returns from trend following a basket of managed futures have gone.
Bloomberg had an article asking where have all the “Great Returns Gone”?

Maybe something has dramatically changed and trend following is finally dead? Probably not…as in the article Bloomberg mentioned Fort LP a managed futures firm. Bloomberg spoke about the returns of Fort LP. However, past performance is not indicative of future performance. Maybe in the midst of one of the hardest trend following periods a glimmer of hope is possible. Buy the drawdown? Time will tell..

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE RISK OF LOSS IN TRADING COMMODITY FUTURES, OPTIONS, AND FOREIGN EXCHANGE (“FOREX”) IS SUBSTANTIAL.

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AMAT Still Chugging Higher in Slight Stock Market Weakness

Trend Following of Stocks is buying the strongest stocks in the strongest sectors. AMAT applied materials is an example of a stock trending higher. Our job as trend followers is to follow the trend. Have trailing stops and the emotional strength to continue and look for short profits.

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE RISK OF LOSS IN TRADING COMMODITY FUTURES, OPTIONS, AND FOREIGN EXCHANGE (“FOREX”) IS SUBSTANTIAL.

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Why We Lose Money in Trend Following

I received an interesting email from a Facebook post…Trade your way to Financial Freedom via Trend Following & Market Wizard.

Thought to shed some light on the realities of trend following and trading. Why at times we make money…why we lose money…and that most of the time we are in whipsaw non trending markets.
I do not sell hype. I trade for a living and can tell you the truth that there are tough periods. The Wheat chart shows the reality of trend following.

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE RISK OF LOSS IN TRADING COMMODITY FUTURES, OPTIONS, AND FOREIGN EXCHANGE (“FOREX”) IS SUBSTANTIAL.

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Extreme Stock Market Valuations – Trend Following

Stock valuations are at highs only seen since 1929, 2000 and 2007 yet the stock market still is churning upwards. Breadth is weak and not all stocks are participating. There are those who believe, maybe rightly or wrongly that Trump’s infrastructure projects, deregulation and tax cuts will propel the stock market even higher. As a trend follower, I know anything can happen and not trading my opinions. Actually I am long the Dow, Singapore Index and the CAC. These are trades, I would have not preferred taking but I believe in my system more than my opinions. I have trailing stops and who knows what can happen.
If I tried to use common sense, I see real estate bubbles..student loan bubbles…subprime auto bubble and an interest rate the lowest in history. To me, that is rather toxic. However when one looks at a parabolic move, it is virtually impossible to call a top. That is why I am trend following. I know, I will be available if the move continues…I know if the move does not continue, I will give back my profit and might even end up with some type of loss…hopefully a small one. I should not have a 50% draw down as many experienced in 2002….or 2008….or even worse in 1929.
Trend following is taking trades against your own personal opinions. I have learned my opinions do not mean all that much. Nice to be humble.

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE RISK OF LOSS IN TRADING COMMODITY FUTURES, OPTIONS, AND FOREIGN EXCHANGE (“FOREX”) IS SUBSTANTIAL.

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Trading All Markets The Same with Trend Following

There are those who think they can optimize their systems by market. Ie…trade crude oil differently than the Yen. My answer as a long time trend follower, good luck. All markets are completely unknown and will do the unexpected. Thus I am a strong believer in robust…simple systems for trend following.

Simple and robust do not make profits. Trend following is a tough deal. You will have draw downs, you will have long series of trades that simply do not work. However trying to pick markets that trended in the past and apply to today’s markets, I would believe that is a recipe for disaster. Trading and trend following is hard enough. It is completely un intuitive…one would think…high “win” rates…consistent profits…are the way to trend follow. In all reality, most trades do not work. Probably 35-40% of all trades work if that. There are no consistent profits. You will go through tough spells, like we are in…or at least me. It can be completely frustrating if you let.
Contrarily….when you least expect it and feel completely beaten up, you stand the potential to stumble into enduring unexpected trends.

yes…only the potential…Nothing is for sure… Total unknown…This is trend following
I wish the truth was given out as a pose to all those promising non existent profits by this magical system or magical manager.

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1% Per Month is Not Realistic with Trend Following

It would be very nice that one could earn 1% a month without risk or volatility. This is exactly not what trend following is. I am personally reminded after a nice run up, to give almost all of it back. Frustrated? Mad?..to be honest might have to say a little bit, however I know this is trend following. It is full of small loses that accumulate. Trend following is giving back equity during a draw down. Trend following is most of your trades do not work. Trend Following is having maybe if you are lucky, 5% or less of all trades make your year.
The key of trend following is following your plan. There will always be challenging markets and tough markets. Honestly, this has been the roughest patch I have ever experienced. 2011,2012,2013,2015 and 2016 were simply disappointing to say the least. However, I want to believe because it has been so tough there might some light at the end of the tunnel. No one rings a bell when trends start. Virtually my entire run up was due to Rubber almost doubling. When you least expect it, trends emerge.

Do not chase profits, actually personally believe as much as anything can happen this might be a very interesting time to invest in trend following.

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE RISK OF LOSS IN TRADING COMMODITY FUTURES, OPTIONS, AND FOREIGN EXCHANGE (“FOREX”) IS SUBSTANTIAL.

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Trend Following Versus Citron the Short Seller MBLY

In trend following we are not looking to be right, rather we follow a complete set of rules & look for patterns. I recently wrote about MBLY -Cup and Handle Formation Canslim Trend Following MBLY

There were clear trend following setups. However setups do not mean that trades will work and you make money. Actually many do not work and that is why one needs to trade with stops to protect capital. In trend following you probably have 30-40% of the trades work. When they work you want to have the patience to follow the trend and even add if so desired.

MBLY was bought out this week. Andrew Left of Citron who is a short-seller, who once called Mobileye N.V. MBLY, -0.26% the “most outrageously overpriced, over hyped semiconductor stock. Wrong right…everyone has an opinion…However his opinion was very costly both financially and probably emotionally.

MBLY jumped 30% in morning trade, after Intel Corp. INTC, agreed to buy the camera-based driverless technologies company in a $15.3 billion deal. At current prices, the stock has run up 27% since Citron’s first bearish call.

This clearly defines the saying….do not fight the trend….The trend is your friend…But make sure you realize trades like this do not happen often and you will have countless trades that do not work.

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE RISK OF LOSS IN TRADING COMMODITY FUTURES, OPTIONS, AND FOREIGN EXCHANGE (“FOREX”) IS SUBSTANTIAL.

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Buying New Highs and Breakouts Trend Following Stocks

Weekends are used for relaxing. One way for me to relax is to funnel my watch list of stocks for trend following. Consolidations can lead to break out. You need to be ready ahead of time with Trend following. In the below examples you will see stops that share a commonality of hitting new highs as well as I have drawn lines of consolidations…

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Stock Consolidation Patterns in Trend Following

Stock consolidation patterns give investors potential to take up new positions in trend following or even add on a successful position. When adding or pyramiding, one should not get to top heavy. When I add to my stock positions, I will only add 10% of my position size on any consolidation or even pull back to the 50 Day moving average.

Below are some examples that are on the watch list for stock

AEIS at $64.63. In buy range above $63.85 buy point in 5 weeks tight pattern

ANET at $124.17. In buy range above $123.22 buy point in 3-weeks tight pattern.

CMA at $72.16. In buy range from $71.30 flat base entry

MRCY at $38.16. Near $38.63 buy point in 4-weeks tight pattern.

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