Say hello to dear little Noddy! Give him a merry wave please as he toddles by in his little red and yellow car on his way to meet Biggy Ears in his little toadstool house. Follow his adventures as he battles with the terrifying Goblins, Sly and Gobbo. Comfort him when he is scolded by severe Mr Plod the local policeman. Meet his friends Bumpy Dog, the Wobbly Man and the rest of the gang. If you are a Brit, you will know just what I am talking about. Noddy is the delightful creation of Enid Blighton in her charming series of books for toddlers. What is the relevance to trend following? Well, like Noddy, trend following is very, very simple. Anyone who tells you otherwise is trying to sell you something. And certainly they are pulling the wool over your eyes. I am going to be writing a series of Blogs over the next few months designed to keep the neophyte away from the voracious and useless systems salesmen and the shark infested waters of trading rooms. There are doubtless a few genuine people out there who provide some sort of value for money but the overwhelming majority are frauds who do not even trade and yet charge thousands of dollars for curve fitted rubbish. All the beginner actually needs is the simple guide that I intend to provide, a reliable end of day data source and a good back testing engine. And a few good books. Emphasis on "good" - again there is much bewildering and useless rubbish out there. Will the trend following trader make money? I don't know - that is up to him, his psychological make up, his discipline, the markets and, frankly, a lot of blind luck. Trend followers have made fortunes over the past few decades. Equally, some have lost fortunes. The markets need to smile on you and you need to be aware that conditions change and so must your systems. My belief is that Trend Following will continue to prosper once significant and long lasting trends re-emerge after the past few difficult years. But I am a mere mortal and no oracle, Delphic or otherwise. At least however I hope to keep you out of the hands of the greedy and useless world of trading salesmen.
Noddy is famous in France too, where he is known as Oui-Oui. Seriously - what makes you think trend following is simple? The systems that can survive modern markets need to be pretty sophisticated.
What makes you think its complex? Trend followers will profit where trends are of sufficient quantity, duration and magnitude to make up for the many losses resulting from choppy markets and whipsaw. Otherwise they will lose money. CTA results over the past few years have demonstrated this well enough and indeed the head of Transtrend said much the same to me when I spoke to him at the beginning of 2012.
Compare the long term results of basic trend following systems (e.g. Turtle, Dunn) with those of relatively sophisticated ones (e.g. Abraham) and tell me which you prefer.
Probably not the right place to enter into that sort of discussion. See this thread which states very clearly my position on the need for continuing research and development: http://www.elitetrader.com/vb/showthread.php?s=&threadid=179342
I would like to see a trend following thread address market selection. Yes, the trading books ALL seem use the same 20 or so futures contracts , present a couple of systems and show the results of varying parameters. They are all the same. I would like to see someone take on the issues of how to select markets, where each stock in the sp500, is a "market" along with the usual suspects mentioned above. Or, should we submit to....you cannot predict when a trend will begin or end. Just apply your system to the usual suspects and hope for trend. I just think market selection is not given enough weight. Thanks, hope this thread has legs.
You might want to look at Eric Crittenden's paper "Does Trend Following Work on Stocks". Don't back test the current constituents of the S&P - you will get highly curve fit results. An index = a system. You might like to see "Index Investing = Trend Following" by searching for that title and "Anthony FJ Garner"
Vehicle selection is hardly ever discussed, yet it can make a huge difference to outcomes. My own focus has been on exactly this in the last couple of years, as opposed to trading through all conditions. I've found it hard to find a reliable bull/bear/none switch via backtest though, and have come to trust my own discretion instead. Which isnt a very scientific explanation, im afraid. The rest is mechanical. Nice to see a thread on trend. And perhaps, noddy too. I loved noddy as a kid..
I found a big difference when I changed my thinking from " apply system and hope for trend" to " here is a trend, let's hope for continuation"
That's admirable, since you are right, most of them are useless. Agreed 100%. Looking forward to seeing how you present a method for identifying a trend in real time.