Theory on Trend Trading

Discussion in 'Strategy Development' started by RunTrade, Jan 18, 2006.

  1. I was thinking about this last night and am wondering what LT results would look like.

    If you trade with a (strong) trend with exactly the same profit target and risk allowed (ie, take profit at 3%, stop loss 3%), wouldn't the fact that the current trend suggest that you will have more winners than losers in the long term?

    Obviously, the main problem would be having enough capital to sustain drawdowns as they would probably be rather large. But I am looking to quantify the above.

    Assuming your target is the same amount that you risk (1:1 risk reward) and you enter with a trend, what would your win:loss ratio look like? 55% / 45%? 60-40?

    I know its a silly idea, but the simple idea of going with the trend could have more credit (heavier weight) if you could quantify how much going with the trend helps to improve your odds?

  2. First question . . . how are you specifically defining your trend?
  3. Very simple:
    If you buy first and sell later for a profit, the trend was up;
    If you sell first and buy later for a profit, the trend was down.

  4. :D

    very nononsense.

  5. dac8555


    i agree with you. i would love to be able to define the odds on that one...

    i think the scenario in question boils down to time period, and % stop loss. mainly. but that again would only calculate for the past.

    "greater than 50%" odds however works for me. i think going with the trend on increasing volume and increasing earnings surely puts the odds greater than 50,50.
  6. I'm sorry, allow me to rephrase the question for the English impaired.

    RunTrade, how are YOU specifically defining YOUR trend?
  7. No one can predict the right trend more than 50% of the time(because there is always the possibility of market turning around) and along with that, using a 1/1 risk/reward ratio would equate to you breaking even on your trades, and losing your commission. Net result = -commission.
  8. Trent


    As you obviously do not understand much anything about trading it would be better if you stop giving incorrect "advice" to ppl as it does them more harm than good.

    Blind leading the blind.

  9. Yeah.. yeah.. there is a variable in there. You maybe able to correctly identify trend 60% of the time with your Fibonacci/Gann/Wycoff analysis. But, the fact still remains that 90% of the traders couldn't identify trend with any certainty no more than 50% of the time.
  10. When you are dependant on charts to tell you in the first place whether or not you are bullish or bearish, realize that you are at the bottom of the food chain and basically playing a game of musical chairs with other traders just like yourself who are also just jumping aboard anything that follows a trendline.

    In this situation, the way to increase the odds of a successful trade would be to enter that trend as early as possible, preferably before the trend becomes apparent to others, and to exit before the music stops --aka, picking the top/bottom of said trend. In other words, doing that which a trend trader does not know how to do.
    #10     Jan 18, 2006