You might want to look at this post... http://www.elitetrader.com/vb/showthread.php?s=&threadid=26623 Of course it's up to you to backtest whatever method you use for following a trend. The most important thing (!) about trend following is that you must have reentry rules if you get stopped out. Whatever rules you use you will likely get stopped out at some point. If you just walk away you could easily miss a large part of the trend, so you must get back in on the trend ASAP.
I think backtesting will show that stops won't effect your P/L much on a longer term trend following system, particularly if you trade it across a portfolio of commodities. Such systems typically autoreverse, so you don't run the risk of being stuck in a losing position against the trend. I think one of the best markets for a newbie is the eurodollar interest rate futures. Very low margin required and you can get some long moves. The currencies have usually been a favorite of trend followers. Just play them small, as the overnight moves can be brutal. Personally, I would avoid the stock index futures and the oil complex.
So if you are long and price goes down, you make money? I don't know how to do that. Please teach me...
Yeah, seems to be no way to avoid those major DDs in trend following. Still, if that's they way it's to be then so be it. I'll just accept it and get used to it. From everything I've learnt about the market trend, following is one of the few things I've seen that has a sound logical (and 'proven') basis to it and is virtually sure to work into the future. (If not, well, so be it. I'm prepared.) Obviously for someone wishing to 'trade for a living' 50% drawdowns (or even 20% for that matter) are 'unacceptable'; good luck trying to find viable alternatives though. Axeman appears to have found one, but I seriously wonder just how reliable that historical DD of 6% really is. In my uninformed opinion my initial reaction would be "yeah, right!". Of course, I wish him all the best with it.
I have heard of them. Many times. I have heard of UFOs too. But I wonder is trend really down if price goes up? Can you make money going against the trend? Ultimately, if you make money on a long position was trend not up?
Trust me... they exist, and they are far easier and less gut wrenching to trade than trend following systems The hold times are much smaller too, so the market exposure is TINY. I could show you some stats and a smooth equity curve from one of these systems, but EVERYONE would call BULLSHIT and since im not willing to share the system, I would not be able to support my assertion with the trading rules. So sorry.... you will just have to take my word for it. Or not Im working on version 2 of my counter trend system right now and in 10 years it has less than a 4% drawdown. Hows that sound? I never would have believed this possible 2 years ago. So you all can call bullshit all you want. Dont care. I would have said the same thing. peace axeman
By your definition opw, a trend is determined from one trade to the next and I think you'll be hard pressed to find anyone else who agrees with you on that. Trend definition does vary depending on timeframe etc, but to say that just because prices went up, a new trend has been established, will not get any sort of common agreement. JB
Hell...thats STILL my reaction! LOL! Im simply stunned. I look at these stats and just cant believe they are true. So I continue to search for ways to prove they are wrong. Over and over and over again.... After a while...you just give up and accept the facts that you have a kick ass system peace axeman
One of the big hassles in devopment and testing trend systems is eliminating survivorship bias. This bias has a greater effect on trends then any other system I've tested. If you aren't testing for this bias your results are next to useless. JB