Howdy folks, is there a way for money management to save you from losing as much in chop if you are trend following? For example, sizing up/down (or is that just martingale-esque?). This is assuming your signals can't determine any difference between trending/chop. It would be nice if anyone could share ideas, thanks.
Are you talking about day trading? Well first off you have to understand how to identify chop and trends.. This will save you a lot of money.
I've tried a few strategies and the scaling up / down idea didn't perform as well as just running wide open. However, I believe the real solution is to run one trend following algo on another's theoretical equity curve. Other solutions are volatility filters that switch the capital off above a certain chop level, tighter trailing stops based on consecutive losers, etc. Every system will have a different sweet spot. You never know what will help or hurt until you test it.
I had the same problem with my trend following strategy and these two rules I implemented really improved my results by a significant amount. If day trading with a trending strategy you may want to consider not trading during certain hours of the day. I find that after 10AM PST the market cools off quit considerably and the probability of sustained moves in either direction decrease by a large factor. Also, again if day trading, look at the 5 and 10 minute candles and see if there are a few inside bars that have formed, when I see this I stop trading and wait for a breakout.
You people stop please using "trend following" and "daytrading" in the same sentence. No intraday movement can be considered a true trend. The morons that taught you that crap did that for giving you the false impression of doing something valuable instead of noise trading. If you daytrading, you are a noise trader whether you trade patterns or trends, period. Trend following means days, weeks, months, even years. Please do not insult trend following. A daytrader is a noise trader and nothing else. Any trends you see in intraday data are random, where any trends you see in daily data are due to fundamental factors and momentum, they are the non-random part of the data series. You cannot catch random trends with any non-random indicators. You will be ruined at the end.
A trend is a trend whether on tick charts or 1 minute charts , or trend is what you want to believe is a trend.
I agree with you wholeheartedly! If someone claims to be a trend follower, you simply do not expect him to day trade. If that person actually does it, he is simply a day trader or scalper. Whether you go with the trend or against it, it does not matter in this context. It's about the definition of trend following.
If you already have a trend following signal (MAs), then add an oscillator (stochastics, RSI, etc.) to keep you out of the chop. That's the very simple answer, but it's also very general. Specifics are something else...