He had to close down in 1997. In 1998 he started again but had to take a mortgage on his house. So all his profits were gone????? In 2007 closed down AGAIN after 75% loss. With that trackrecord it seems that not following the trend sucks too, or is even worse. Would you give money to invest to somebody who blew up two times?
Life is pretty simple for a trend follower (we're all pretty simple people). Something goes up, you buy it. If it starts to go down, you sell. You can have a stop loss as well, but it would be doing something pretty similar to the underlying rule - there's no conflict. You wouldn't use profit targets - whilst the trend continues you stay in. If you're trading some kind of mean reversion, it's a bit harder. Should you for example use stop-losses, and/or profit targets? Suppose you think the market's fallen too much and will rebound. So you buy. Then the market falls:- If you have a stop loss: You'll sell. But your trading rule will be saying buy back. Conflict. If you don't have a stop loss: You'll do nothing, or perhaps buy more. Fine, unless you continue to be wrong. Suppose the market rises:- If you don't have a profit target: You'll stay in the trade. But your trading rule will be saying sell. Conflict. If you have a profit target: You'll exit. But are you giving up profits if the trend continues? It would be interesting to see VN's account curves. Did he bleed to death slowly (indicative of a lot of missed turning points and stops being hit), or make money consistently then blow up (suggests he didn't have stops). I'm scratching my head about what you should do after hitting a stop loss, when we have a rule saying it wants to re-enter. I guess one thing that might make sense is to add a fast trend oscillator - when that turns back up again, then we rebuy. But then we're sneaking in trend following via the back door.... GAT
My answer to that is "Market structure" and "good trade location relative to risk" which is beyond the scope of this thread.
Niederhoffer made money selling options. This will produce a steady stream of small profits (since most options expire worthless) BUT from time to time, (very) large losses. There is a good article on Niederhoffer and Taleb and their contrasting strategies in the New Yorker a few years ago, it may still be online. Well worth a read. http://www.newyorker.com/magazine/2002/04/22/blowing-up
He has some interesting comments about iBeaker: Victor Niederhoffer writes: To say nothing of their [IBKR] ability to take the other side of trades when their customers are stopped out for margin. According to one list member, they proudly acknowledge this in their conference calls. And one often sees huge bids below the market when the market is down big, and assumes that it is such an entity on the other side. In all fairness, however, I know from others that they give you a warning of 2 seconds or so and you can forestall being stopped out if you get the wire for your new margin to them within that 2 second window albeit, you might have as much as 2 minutes if you receive the margin call in the evening when the banks are closed.
There was a guy on ET a few years ago (and he also had a blog) who worked in the Chicago pits and he told a story (on his blog) about Taleb coming down to the pits once in a while and making ridiculous trades like he knew something nobody else did. Does anyone know who I'm talking about?
If you trade against the trend, sooner or later, you will catch the mother of all losses. Viktor Niederhoffer proved it two times in a row.
Victor is one of the top non-automated futures traders in the world, doing well to this day. Not only this but he has taught more 7,8,9,10 figure traders than just about anyone. Obsessing about a few mistakes or statements made nearly 20 years ago is not helpful.