Is this seriously what trend traders do?

Discussion in 'Trading' started by IronFist, Sep 22, 2017.

  1. Sprout

    Sprout

    Trend following and trading a trend are not the same thing. They operate on different timescales and require different skillsets.

    Understanding how to define a trend in it's smallest components, it's essential elements would be a good start.

    Top down, bottom up, both are part of a complete whole enchilada.
     
    #31     Sep 23, 2017
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  2. I feel the need to chime in here if you don't mind. A tradable trend can be differentiated from a false breakout by the retest of S/R. Entries based on this are never underwater for very long. Usually seconds if at all.

    With regard to trend determination. There are many ways to determine a trend, most of them are correct. Higher highes, fractals, swing levels, they all tell the same story using different techniques.

    With regard to exits. A trailing stop strategy will almost always fail a trend trader. The reason is because will routinely retrace to at or near previous micro S/R levels. This means that a trail stop strategy will kick the trader out of good trades and skew the odds against them.

    I wrote an article about breakouts that discusses some of what i am trying to say with more clarity. You can read it here

    “What day traders don’t know about trading a price breakout and how it can cost them big time.” https://medium.com/@johnlarsen_38718/what-day-traders-dont-know-about-trading-a-price-breakout-and-how-it-can-cost-them-big-time-e40cdd879320
     
    #32     Sep 23, 2017
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  3. 777

    777

    Successful trend followers are not almost entering randomly.

    However, If everyone agreed on a great trend following system with the exact same set of rules, that exact system would stop working.
     
    #33     Sep 23, 2017
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  4. Simples

    Simples

    The first part is true, nobody agrees on definition of trend. That is for you to find yourself, which might or might not help you depending on everything including trading timeframe, holding period and risk logic.
    But leaping to conclusion that successful traders enter "randomly" is unwarranted. To understand a methodology, you need to research all its rules and their possible implications (complex/chaotic realm), information you don't possess. This is different from trader to trader, and made difficult by the fact that the larger majority of active traders have losing strategies. It is hard enough to backtest one's own strategy while minimizing bias, but to backtest other people's, is virtually impossible without getting to know all details and how they make their trades, how they get information etc. Notice, not even the successful traders themselves might fathom all the reasons why their system works, or in which cases they can abruptly stop working correctly.

    Trying to emulate losses in order to find the few winners that make up for them, doesn't make any sense at all. Of course every trader want 80-100% winners. But if you truly attempt to hold as long as possible, you'll be God if you achieve beyond 50% with low risk (consistently predicting long-term future)! If you scalp or exit at targets, getting high percent winners is easy, but won't save you from bad times in the markets or provide huge risk-adjusted returns.

    Stop worrying so much about what others are or aren't doing, and focus on what you want to achieve, and then come up with ideas how you can make it work.
     
    Last edited: Sep 23, 2017
    #34     Sep 23, 2017
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  5. Canoe007

    Canoe007

    Correct - at the upper most and most naive-view.
    Except that is over simplified and how trend trading would appear to a novice or someone who got a partial explanation of trend trading. Perhaps someone started explaining at the simple and didn't get into the details.
    Correct, if you've got poor entry selection and are accumulating a bunch of losses.
    With quality selection of entries with a high expectation (probability) of continuing the trend, then you have an accumulating mix of:
    • small losses,
    • tiny losses,
    • tiny or small winners,
    • medium winners,
    • large winners.
    I'm ignoring the break-evens, as they are few (at least in my trading) as the tiny positions tend to fall into a tiny loss or a tiny win.
    If you have medium or large losses, you're really doing it wrong.
    When you first start trend trading, three guesses which category has the most "hits".

    Trend traders work on developing setups and early position management that minimizes the first category, either avoiding them entirely or resulting in greater numbers of the second, or better yet, of the third. It's easy to harvest profits from the medium and larger winners. And very satisfying to see the refinement of setups & management resulting in the numbers of small losses, tiny losses & tiny wins having a huge bias towards tiny wins. Much nicer to be accumulating tiny wins instead of small or tiny losses. I've explained it to family that it's easy to get wins, but far easier to get losses, so the profit comes from avoiding and minimizing the losses. That's true for most (all?) trading, but for trend trading on the second, minute & hour basis, it's critical.

    Correct - if you're stupid enough to take every trade/entry indiscriminately, then the accumulated losses will leave you in the position of needing that big win to save you. (watch for gambling terminology used by those traders...) That may work occasionally. It is highly unlikely to work over time (99 44/100% certain not to work over time). Actually, I've never met anyone for whom this worked over time. Ask any of the tens or hundreds of thousands of new traders that pissed their capital away that way.

    Too bad you got a limited explanation on trend trading. Reminds me of all of the old books on violin making where the authors weren't luthiers nor apprentices, but then wrote a book on the way that violins must be made, or - another popular favourite - how the varnish must be made. (interesting to be in a violin maker's workshop and see which tools have dust (they are props) vs. which they use; too bad we can't do the same for traders...)
    Mine is consistent. So consistent I've coded it. Many other trend traders like this.
    Note that once we identify one entry setup that is profitable, we continue to look for additional entry setups (more opportunities for profit). So you may have had an explanation of trend trading from someone who had multiple setups. And different setups may benefit from different position management early in the position. So I can understand how you ended up with your impressions.
    Of course they're all different. That doesn't mean it's random. That's really messed up logic. You're not new to trading; you expect everyone to trade the same?
    Each will have identified their own setups, based on their "understanding" of the market and the methods they use to "view" the market, and all adjusted according to their understanding and tolerance to risk.
     
    #35     Sep 25, 2017
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  6. Chris Mac

    Chris Mac

    I agree 100% with your post.
    I would just add that searching for big win with huge accumulated losses worked decades ago with hedge funders like George Soros, Michael Steinhardt, Julian Robertson... They were so big that they were the market ! So they were able to be the trend.
    Today, these kind of strategies are impossible.

    CM
     
    #36     Sep 25, 2017
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  7. Canoe007

    Canoe007

    One thing. I believe there's a discrepancy in the way I take profit compared to the majority of those Trend Trading.

    I could easily be wrong, but I get the strong impression that other trend traders tend to have a profit target for each trade/position and harvest profit that way. I do not understand why. This has me going hmmm.

    Remembering that I only trade seconds, minutes & hours, closing everything before EOD: I follow the trend very tightly. As my trend/position continues, I stay with it until:
    • EOD - x minutes,
    • price goes sideways:
      • as time progresses, I start scaling out, taking profit,
      • trend may resume; as confirmed, I scale back in,
    • price reverses:
      • I scale out, exiting on "confirmed reverse",
      • depending on it being a qualified setup, that confirmed reverse may signal an entry in the opposite direction.
    I understand it. It works for me. So until I understand and can backtest a 'target profit' strategy, I have to stick with this.

    But if my impression is correct and the majority use a 'target profit', there must be a reason why, and I guess that reason has to be profit and/or risk management.
     
    #37     Sep 25, 2017
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  8. comagnum

    comagnum

    Trend traders numbers as a whole have large draw downs - as you can see below, the higher the the ROR the higher the draw downs. Agriculture traders have the highest ROR & draw downs. Disclaimer - I am not a trend trader.

    Trend traders index
    upload_2017-9-25_12-32-16.png

    Stock traders index
    upload_2017-9-25_12-30-38.png

    Discretionary traders index
    upload_2017-9-25_12-31-9.png

    Systematic traders index
    upload_2017-9-25_12-33-26.png

    Agriculture traders index
    upload_2017-9-25_12-34-31.png

    Option traders index
    upload_2017-9-25_12-35-19.png

    Source IASG - Historical performance - free site, check for yourself.

    Peter Brandt is a hall of fame trader - considered one of the best of all times with a ROR of 50% and worst DD <11%, this spans almost 30 years!
     
    Last edited: Sep 25, 2017
    #38     Sep 25, 2017
  9. ironchef

    ironchef

    So, on average, traders overall are doing about twice as well as buy and hold SP500?
     
    #39     Sep 25, 2017
  10. bone

    bone ET Sponsor

    If you have to be flat at each Trading session close, you are NOT a legitimate TREND trader. By necessity, you are also Trading retracements, corrections, and market consolidations.

    So few traders comprehend the time element in trend.

    The best references I can refer you to are Drummond Moving Averages and the legit Pete Steidelmeyer Old School Gangsta Market Profile.
     
    #40     Sep 25, 2017
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