Quote from MarketAddict: "The problem is most people only have one strategy to trade the market.. And that's a no no.. If you really want to be successful you have to have different strategies to trade different conditions.. " How do you decide when to use a swing strategy and when to use a trend following strategy? Seems to me, you never know what the market will do, so trying to guess when to trend trade and when not to, just creates more confusion. This something I have always struggled with. Thanks
I don't think that is true at all. The fact of the matter is that many ET members just think of it as an afterthought - that somehow the entry signal needs to be the 'holy grail' and that everything else takes care of itself provided you have the ultimate trade entry signal. Money ( position ) management need not be complex or controversial. Set your profit target and stop-loss level at the time of entry. Bump your sizing up incrementally when you are putting together winning trades - in other words, lever your consistency. Bump your sizing back after your second consecutive loser. That and a modicum of common sense will take you far.
It can save you from blowing your account. Money management can be as simple as risking no more that a certain % of your remaining account on each trade. The main point is to have the discipline to implement your system.
This is of course the great weakness of trend following systems. I emphasize the word systems, not just using market direction as a filter. Once you introduce the concept of adjusting parameters on the fly, eg resizing stops or numbers of contracts, you add a new level of complexity and run the very real risk of curve fitting. Reducing trade size also is problematic. Trend following systems tend to produce about 30-35% win ratios, with large drawdowns and consecutive runs of losing trade of>10. Few traders have the stomach or account size to deal with that. But the profitability of such systems is typically dependent on a few trades. Miss them or catch them with too small a position, and your system stats go out the window. Commercial systems use all sorts of compromises to try to alleviate these issues. Mixing in a countertrend system is a common approach, as is using multiple lookback periods to trigger signals. If you're not talking about actual trading systems but just using a methodology of trying to catch trends, then the challenge is to distinguish trending periods from chop and reversals. It's not easy, but backtesting and experience help. Personally, I like to identify a dominant direction from a higher order time frame, then trade in that direction only in a lower time frame, eg by catching pullbacks. If the higher order timeframe is in chop, you would look to fade extremes or just not trade, which is probably a better choice.
Thank you for your thoughtfully worded reply. I was not endorsing anyone. I could care less about the methodology of Bernstein or Sands. I trade only using only my plan which has no Bernstein or Sands in it. The point is I use these quotes because the words in them jog my memory as to how my plan is formulated. :
Thank you, one of the most logical posts on this thread. Who the f*k cares what the definition of trend following is. The "trend" is subjective. I can apply the same method to daily/5min time frames and make money following the trend. If I'm in and out in a day yes I'm day trading but I'm trend following too. I don't care what some random dude wrote on wikipedia! For goodness sake don't overcomplicate things. Thanks for the literal LOL. No wonder you alias oldtime
==================== Good point; unless one is still learning to trade, or hasnt learned the BIG diffrences between bull trend/bear trend. ================= Even risking a small amount [1%]; thats less than 100 losing [OR ''EDUCATIONAL''] trades. Thats wisdom. So to answer question, ''can money management save a trader in chop'' No- but it can slow the go to zero-goose egg %%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%
Yeah my son gave me this look and said "But I thought there were always supposed to be bad days and good days". That was at 1PM. That one bit of conversation prevented me from doing something seriously stupid, so that by 3PM all was back to something vaguely resembling a decent day.