Richard Dennis Original Turtle Trader Interview- Trend Following

Education is everything. Who best to learn from are the masters themselves in Trend Following. Richard Dennis and Eckhardt are the modern day founders of Trend following. On top traders they post fascinating interviews with legendary trend followers such as Jerry Parker…and many other traders.

It is well worth your time to listen.

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Trend Following…Death of Thousand Cuts

What’s going on with Trend Following?  This is no get rich quick…Trend following is not make money in up or down markets…’s been one tough environment for systematic programs which rely on market momentum and volatility breakouts. It’s been well documented that we are in a historically low volatility.

Trend following currently has been “Death of a thousand cuts story”, with the computer models designed to typically look for every possible opportunity more so than they’re designed to avoid a lack of opportunity. Stitch it altogether and you get a lot of “strikeouts” and not a lot of hits, causing consistent losses. No big trends…no lasting directions…This is the only way trend followers make money.

As in baseball…only way to win is to have the right pitch. We as trend followers are not getting these pitches…Rather striking out…small losses…and simply more small losses. We are swinging at every pitch as you never know which pitch can win the game. I remember the CEO of the CME telling a story about a silver trade in which he exited (against his system) as he thought it had gone to an extreme…however silver during the Hunt brothers went to the moon….anything can and will happen with trend following…we have to go through the tough times to hopefully reach the good times…

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Stock Market Update- Trend Following

The New York stock market averages are now under their 50 day moving averages as well as the Nasd averages are just slightly above this support level. The Semi stocks have continued to weaken and the SOX moved further below its 50dma. The market looks tired and the rally that began last November is under the most stress it has been in. An increased level of caution is warranted at least for now.

However with that said…we are always waiting and watching with our “Trend Following Watch List”

BABA is holding up…


Has a congestion …looking for a breakout..


MTSI A semi is still holding up…stronger than the rest

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Trend Following Breakout Setup MCHP

Sometimes you have a setup of congestion. MCHP is a good example of this. More so, this is a leading stock in a leading industry…Example of trend following…buying out new highs…

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Successful Trend Following -Knowing You Do Not Know

It is always a pleasure to listen to the podcasts from Traders Unplugged. Episode 95 was extremely informative. The podcast included Katy Kaminski, Alex Greyserman & Roberto Osorio. All trio work at the leading Trend following funds. What I found very interesting was the depth of data they looked into. Considering how tough the last couple of years have been for trend following, the data in which they spoke put things into context. Trend following is a very tough way to invest….however historically ( which does not mean anything as past performance is not indicative) Trend following has produced non correlated returns to the stock market….You can listen to the podcast by clicking here.

Past performance is not indicative of future performance

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Margin Debt in the Stock Market – Trend Following

Margin Debt in the Stock Market is a potentially predictive measure. Margin debt is borrowing against investors brokerage accounts. When investors borrow….they are bullish. Well, most investors get it wrong unfortunately. We are 8 years plus into this bull market. Maybe it will continue, however as we are humans we all have an expiry date. Bull markets do end at some point ( maybe when the cheap money stops following)?
Last month, Feb we had a record high of margin debt….All the while in the background, hedge funds have under-performed… small-cap stocks not keeping up with the Amazons of the world and record inflows into ETFs.

Fundamentally, Margin debt has a history of peaking right before financial collapses this seems like a warning to me but everyone say it’s different this time. I forgot, markets can not go down any more.
Trend following is not predicting…we are reacting. Actually I have several positions long various stock indexes…but with trailing stops…if they continue their upward thrust, I will go along for the ride…and if they turned down…see ya…and at some point might have a signal to go short.


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Stock Market Holding At All Time Highs – Trend Following

The stock market is right at its all-time highs and it would be a very positive sign if it were to break into new high ground, especially if it was accompanied by strong volume. This is what trend following is all about, buying new highs…and more so all time highs. This does not mean that the trade will work however. That is why you must trade with protective stops. They do not need to be overcomplicated as simple works best. For example, I am in favor of a 50 day EXMA…or even a variation of a trailing ATR stop.

The fact that the stock market could hold yesterday’s gains and even build on them is a positive sign. If the stock market indexes can make new highs it will likely mean the rally is intact. If they can’t we would probably see lower prices….

Have a plan…and have the fortitude to follow it. Following the plan is the hard part.

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Out Perform Warren Buffet or Any Trading Strategy including Trend Following

Out Perform Warren Buffet or Any Trading Strategy including Trend Following

Forget Trend Following…Do better than Warren Buffet…Simply Buy the Dip! The Stock market is never going down.

Actually I had this conversation yesterday. Ironically so far, he is correct.
Trading like this works until it does not work. It is the same with option sellers. It looks great and consistent until they blow up. Trend following, we are constantly taking losses. Countless trades do not work. You might think to extend your time periods…however you will get into trades later and give back much more profits. Conversely if you think you can lower your time frame, you will have more trades…more slippage and there is no guarantee this will enhance returns. I have seen many trend following legends throw in the towel over the last 6 years. I honestly can not figure out why, these trend following managers had in the beginning of their career….6 out of 7 VERY profitable years…and today when you look at the vast majority of CTAs…the last 5 out of 6 have been flat to negative. It is very true…Past performance is not indicative of future performance….

However there is a big piece of me, looking to contrarian…and believe at some point…the stock market that can not go down…Does go down in grand fashion….interest rates might go up…Commodities might roar…Who knows…Anything can and will happen. We just need to be available and keeping on putting on trades and accept the inevitable reality that the vast majority will not work…
This is trend following..

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Win & Loss Rates When TrendFollowing

I did a study on my trend following results. What I found was very interesting. I used a rolling look back on past results of real time trading. What I found was that my win loss rate was rather constant…something in the range of 62% trades loss ( not working)….38% trades winning ( working). I do not like labeling loss and win…Trades either work or they don’t. It is that simple. I use the same methodology over the years with some slight tweaking…but simple is best.
What I found surprising however was the size of the trades that worked ( win) varied greatly. I seemed to have more outliers in 2007-2008 as well as in 2010. Since 2011…these big outliers have been few and far between. It is not just myself but many of the long time trend followers going back decades have closed….or stated these are VERY tough recent markets.

Suggest you take this into account. Back testing is not relevant for future results. Anything can and will happen when trend following…

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Multiple Entries with Trend Following Stocks VEEV

When we trade stocks…we look that the market is healthy….that is rather uncertain after 8 years plus….we look for strongest financials and technical setups. With VEEV we have multiple trend following setups. Setups are only part of the game. We need trailing stops…we need risk per trade and total risk on the portfolio….However VEEV shows multiple entries and is on my canslim watchlist.

First we had a W bottom…as shown by the arrows….Then we had a Cup break out…and a cup with handle break out. These patterns repeat all the time. However they do not work all the time. That is why we trade with stops.

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