Registered: Oct 2007
12-10-09 04:15 AM
Quote from AFJ Garner:
Markets DO change. Trend Following DOES work. Yes.
Here are another couple of statements which will raise howls of anguish and disapproval:
Prediction IS necessary in trend following.
Discretion IS an integral part of mechanical systems trading.
It is perhaps not "necessary" to trade multiple systems, whether trend following or otherwise, to achieve some degree of smoothness. I do not think that Druz/Tactical does (judging from the disclosure document) and I like his results (apart from the 53% drawdown in the very early days). I think that most traders, given enough research and effort, can arrive at a single TF system which they will find bearable to trade in terms of win/loss ratio, drawdown, length of drawdown, volatility. Although they may not be able to approach the Transtrend example.
“Prediction” is necessary in a number of ways. For example, to take some sort of view on the likelihood of your system remaining profitable into the future (at least for a while). Prediction is an integral part of trend following: it says " I have spent much time back testing my plan and if in the immediate future the market does not change TOO quickly I EXPECT similar performance for the future”. Then, for a while, the trader can sit back and take his system’s trades without too much reflection. But to suggest that TF is purely reactive is abject nonsense.
“Discretion” is an integral part of so called mechanical systems trading because many decisions need to be made which (at the present time at least) can not be taken by a computer algorithm. The examples are legion but here a few thoughts: what portfolio will I trade, when and how will I alter my portfolio; what parameters will I set for my system and how and when will I alter these; a change in my data has caused a position to mysteriously appear/disappear – what should I do about it; 24 hour markets are changing the way people deal and the pools of liquidity – should I really leave my stops in the market any more;……………..and on and on and on.
Precious few of such questions strike the trader until he has spent a while trading mechanically and has lived through such moments.
The hapless beginner (and we are all beginners at some point in time) will spend much time reading books, buying courses and contributing to threads. He will only later learn that much of the “wisdom” he reads out there comes from those who make their money from the fringes of the trading world selling trading advice but not necessarily trading for themselves.
In a hilarious exchange on Seykota’s website, he suggests that Van Tharp should change the name of his best known book to “WRITE Your Way To Financial Freedom”.
Beware the BS. You will come to recognise it. Unfortunately it is not so easy until you haver a little trading experience under your belt.
In the meantime, those contemplating trend following or any other form of mechanical rule based trading have a very powerful anti BS spray at their disposal: back testing. Use it.
What is the name of your book and when will it be released?