In theory, trend following is a valid strategy. You cut loss early and let the profit run. you make money not on perdition, rather on money management skills. 1)if you stop out by opposite trend, what you do? you try to catch the trend by reversing your trade? 2) if you catch a major trend, how to avoid taking profit too early? trailing stop doesn't solve this problem. any secrets?
Trend following worked for the turtles. They didn't worry about being stopped out by an opposing trend or reversing trades. They exited if their stop was hit or if there was a cross of a 10 or 20 period donchian against their position. They didn't use profit targets, but they did add to winning positions, and moved their stop up each time they added to their position so that the amount at risk was constant. See http://www.technical-analysis.com.sg/learnTA/ALookAtTurtle/ALookAtTurtle.html
You need to also determine if you are trading intraday or over a week, or over a month. Let's assume you catch a trend, note I also really don't using a trailing stop since, you could either set a target price to get out of the trade, or let the market tell you when the trend ends. From reading a book called Turtle Trading, they had a low win % since they were looking to get in on a larger trend that could last say a month or more. So they were willing to take many losses till they rode the trend until they got a trend reversal signal. I don't think they then reversed at this signal, it was just used to get out at a profit or a loss. Then they used their rules to look for the next trade. Also, a book on trend trading I read, usually suggested to just get out of trade, not to look for a reversal to gain or lose more profits. I normally look for a target for my trades in that I hope to have a higher win% and also like to set a stop where I think the market will either prove me wrong or before the amount of loss is not worth taking ie the risk vs the amount I want to gain ie the reward. Note for some of intraday trades I do counter trend trades, because I felt the trend reversed.
Yeah, if you can handle a 40-50% drawdown and still keep on trading your trendfollowing system afterwards you've got it made. Better men have tried and failed... good luck
Ankedoten used a trend following strategy for intra-day trading. He waited for an established, significant trend and entered on a pull-back. He pyramided into positions. See http://www.elitetrader.com/vb/showthread.php?threadid=99283
I think OP is talking about trend following timeframes greater than one day. There's a big difference to that vs trend following on an intraday basis such as Anek's thread was discussing. Also, I want to know what making money on perdition means? It must be extremely profitable (in the short run at least) can't speak for eternally though... not so much it would appear perdition [pəˈdɪʃən] n 1. (Christianity / Ecclesiastical Terms) Christianity a. final and irrevocable spiritual ruin b. this state as one that the wicked are said to be destined to endure for ever 2. (Christian Religious Writings / Theology) another word for hell 3. Archaic utter disaster, ruin, or destruction
Wait for a reversal signal and enter the new trend. Take profit on part of the position when each new high or low in the trend stalls, and recharge your position on the pullback. If trading only 1 lot, then you can learn to time the trend and take profits when the new high or low stalls, then re-enter the trend on the pullback. Or hold your full position through pullbacks as long as it fulfills trend-following continuation criteria such as finding support or resistance along the rising or falling 20-bar MA, or not retracing more than 50% of the last push in the trend. Both of these techniques work especially well when you really get to know how a particular trading instrument behaves over time and through varying market conditions. For example, I've chosen to specialize in CL (crude oil), POT and AMZN. Often I can predict pivot points almost to the tick. I shorted POT late today, off its last lower high of the day before reversing, and covered at 98.08, 6 ticks from the pivot low. This kind of precision comes from trading the same thing almost every day for months.
He also said nonsense like higher prices are more likely to be followed by higher prices completly ignoring the historical evidence
How is that nonsense? If a security is trending upward, higher prices are more likely to be followed by higher prices. And even if he did say something nonsensical, it doesn't negate everything else he posted that wasn't nonsense.
There are no secrets to resolve what you've described. 1) if you stop out by opposite trend, what you do? you try to catch the trend by reversing your trade? Only if you have a valid trade signal 2) if you catch a major trend, how to avoid taking profit too early? trailing stop doesn't solve this problem. You are not going to know its a major trend or any kind'uv trend until after the fact as in hindsight. Therefore, not worth the time and effort in beating yourself on the head about this. Regardless, set a profit target and use a trailing stop. If profit target is reach...exit the entire position because the trade is complete and you've reached your goal. Thus, for you to say a trailing stop doesn't resolve this implies there's something wrong with your profit/stop method (recommend you post some chart examples of your problem trailing stop use). However, if upon reaching your profit target and you have new reasons that the trend will continue...scale out your position and use trailing stops that protects the bulk of your profits. Yet, if the trend continues without you on board...don't start playing the hindsight analysis game especially if you've reached your goal. In contrast, wait for the next trade signal or spend time developing a re-entry method. No secrets...the above is just common sense trading although most newbies will ignore it. Mark