altucher/cramer video interview: some good insight into madman cramer's mind: http://www.thestreet.com/video/cramermarketupdates/10277591.html enjoy, surfer
Thanks for explaining and defending yourself- Just to add a note to this discussion: V. Niederhoffer also dismisses trend following and also has a very good book out with a chapter on the subject.
the primary issue in the trend debate is the ability to test for trends. ofcourse anyone can see trends on a chart showing past price changes---however, seeing these perceived trends does little to assist the trader in entering positions. i have never seen any price series that predicts the next series in any greater probability than chance. my friend and colleague victor niederhoffer has done numerous studies that confirm that there is no edge in trend following. you can listen to the statistical tests performed by experts in the field, or to anecdotal evidence of the supposed great trend followers presented by people who write about such things..... it's up to you. for those of you with further interest, here's a little interview i did with niederhoffer regarding this subject. it's a good overview of his philosophy of destroying market myths with the scientific method. http://www.dailyspeculations.com/vic/goodboy_interview.html enjoy, surfer
Honestly, he speaks in such a complex manner, it is very difficult to really understand him. However, as best as I can tell, he admits that trends exist in other non-equity markets: Dave: What about the other markets? Do the same studies hold true? Victor: No. I hasten to add that such tests would not show similar biases against trend following in other markets such as fixed income, or foreign exchange. Then, he goes on to admit that the stock market does have an upward drift (trend) but that he looks at trends above and beyond that upward drift? Dave: What about the upward bias in stock prices? Why canât that be interpreted as a trend? Victor: Well, all proper statistical tests take into account this upward drift. They would look for serial correlations over and above the basic drift of the market. One of the other market cons is the permanent bearishness of some of market pundits, and I am the last person to say that this upward drift, evidenced over the last 200 years, does not exist. This in no way refutes, but it does refine the statistical tests required for the stock market. However, I hasten to add that no such upward drift exists in any other market. Trends exist: See Silver http://www.elitetrader.com/vb/showthread.php?s=&threadid=65798
Once again very funny. I guess buy & hold doesnt work because there is no edge in it either. I guess you have a choice: You take the blue pill and the story ends. You wake in your bed and you believe whatever you want to believe. You take the red pill and you stay in Wonderland, and I show you how deep the rabbit-hole goes. The Matrix
an edge enables one to outperform the benchmarks---buy and hold match the benchmark in that category by definition..... long live neo!
Hi. First of all I would like to say that I am not a trend follower. However I find it hard to believe one could argue that trend following is not working at all. There are many assets that exhibit statistically significant trends. The following test example is from a non-US market stock-index (25 years of data). http://img83.imageshack.us/img83/9348/gd5au.jpg 1. Variance ratio profile >> 1 2. significantly less runs than a normal market. Regards
A frequent (and valid) criticism of the book Trendfollowing is that its author often says the word "trendfollowing" when in fact what he means is "mechanical systems trading" in general -- forgetting that there several major classes of mechanical systems, only one of which is trendfollowing. Anthony has mentioned a few of these others, but omitted one that I happen to trade myself. It's what the Behavioral Economists call "Calendar Anomalies" and the technical analysis traders call "Seasonality". I trade a mechanical system based on these principles, over a basket of a few hundred US stocks. It adds diversity to the mix of investment and speculation vehicles I employ. One example of this genre of system can be viewed on the Wealth Lab site. They track its performance, and allow you to try it out yourself on individual issues by typing in a stock symbol http://www.wealth-lab.com/cgi-bin/WealthLab.DLL/editsystem?id=37046 Another example has been made famous by Yale Hirsch, editor of the annual Stock Trader's Almanac. He calls it "Sell in May and Go Away." Norman Fosback, author of "Stock Market Logic," is now selling a new market letter which gives the signals from his seasonality system. He prefers to sell the signals rather than the algorithm and logic of the system itself. :eek: In the realm of futures contracts, the two big proponents of mechanical systems based on seasonality are (1) Jake Bernstein, and (2) Moore Research. Linda Raschke enthusiastically endorses (2), but as far as I know, nobody endorses (1). However I don't trade futures using seasonality systems so I have no opinion of my own.
In previous posts, I have reported serial correlation coefficients, and performance figures for the 3 major trend following cta's featured in the Covel book, and discussed the fallacy of relying on anecdotal reports of retrospecptively chosen advisers, who at one time or another were associated with trend following, and anecdotal reports on the the wealth of this or that trend follower as much of their wealth often comes from management and incentive fees rather than total profits taken from the market. I was fortunate at an early age to be associated with MFM Osborne, and one of his favorite principles was that flexible fast moving decision makers had a big edge over those who followed mechanical systems, whether in the placement of their orders or the reliance on fixed systems. He believed that the flexible and adaptable would adjust to mechanical systems and take all their chips. I have found from my subsequent study and practical trading that Osborne was right in this belief. A subsequent evolution in my thinking has been the insights of my namesake Mr. Robert Bacon, who invented the system of ever changing cycles which shows why just when a system seems good, it is guaranteed to be worst.Mr Larry Harris magnificent book, Trading and Exchanges has a related extension of this idea wherein he divided traders into ephemeral traders and economic traders, and shows that the former, and their followers are destined to pay the frictional upkeep of the latter, The difficulties with trend following above and beyond other sytenatic approaches include that the execution costs are quite high. A bid and asked spread of 1/4 or 1/2% in my experience is normal for even the most liquid markets like foreign exchange. Multiply that by a turnover of once a month, and take account of the fact that market makers know where all the trend points are, and the amount of grind that the trend followers must overcome can become burdensome indeed. On a related note, I always favor the idea that markets have a relatively smooth and regular relation with each other, and that a good working hypothesis is that when one market gets out of wack with another, that the forces of the other market will pull the out of line market into alignment with it. Occasionally I have communicated with experts on this point, and they have chastised me for my views. They point out that many of the trend followers take out an implicit or explicit 8% of total assets under management a year in implicit or explicit fees, and that I should not judge the five major trend followers allued to above based on their reported results, which as far as I can tell, above were about -25% on average in 2004 and 2005 on total assets of approximately 10 billion ( survivership bias and selective reporting of existing funds results( one of the 10 figure majors stopped reporting after a 10 figure loss)) makes a exact accounting rather difficult. This is a very good point, and a true test of anomalies, randomness, and regularities in this or that market should take such fees into considertion and those who dont charge the fees should not be tarred with the same brush in my opinion. In this regard S&P has an investable index of managed futures that " aims to track systematic managers employing mainly trend following and pattern recognition techniques" .It appears to have been investable from a 1050 or 1100 level in Feb 2003 and now stands close to its two year high at 1130, down from 1200 in March 2004.One imagines that a prerequisite for inclusion in the index is a reduced level of fees so that all can wet their beaks. Nevertheless, it is regrettable to some such as myself that such an index does not seem available for shorting but only for buying. But that is guaranteed to happen. Sincerely, Profturf