I have been reading a book recently about trend following and how to go about following the methodology. Seems very straight forward and simple as far as the "system rules" are concerned... Entry, stops, exits, position sizing etc... It looks to me that the hardest part to trading a trend following system would be the Psychology in riding winners (being willing to give a large portion of your profits back in order to try and capture the larger move-*upside volatility*) and also being able to go through long periods of drawdowns when the markets aren't "trending"... but the results as far as compounded rates of return speak for themselves. These guys make a lot of money when it is said and done.. or so it appears.. Does anyone have any real experience in trading a long term trend following methodology and what would you have to say about it as far as negatives and positives?
I've traded long term and short term systems, mechanical and discretionary. The theory of trading is realtively simple, as your comment points out. The practical reality is that it is nearly impossible to carry out (but not impossible). The general assumption that 95 to 99 percent of traders "fail" (i.e. give up and walk away with varying degrees of hurt) is IMHO conservative. Remember, "traders" here really means people trading with their own account (that excludes hedge fund managers making millions out of OPM) and who can make a living at it in absolute terms (i.e. at least the national average income level). Think of it in these terms - many people can play baseball. Only a handful can make millions doing it. If you are new to trading or thinking about giving it a go, my recommendation would be to avoid ALL commercial systems, buy a lot of books and read them, start playing around with a good backtesting platform and build your own trading systems. Trade in "simulation" mode for awhile. Only risk money that you're prepared to lose 100 percent of. Don't trade if you have financial responsibilities such as college fees, mortgages, alimony payments, etc. This is probably way more information than you wanted, but just in case it helps, I thought I would share.
Thanks for your thoughts and advice. I appreciate it. I recently signed up for a "trend following" advisory service that seems pretty much on the money.. At least so far.. The recommendations come out beforehand, not hindsight, with the protective stops and where they are adding on to the position if it continues to move in the "right" direction. There is a posted track record and some other statistics. I think they are up 33% year to date and riding winners in crude and Ten year notes, currently. They seem to cut losses very quickly based on what I've seen and let their winners ride while moving the protective stop. It appears pretty straight forward and honest, but it seems very difficult to ride the winners especially in times of larger volatility. Do you know of any other "trend following" type advisory sevices out there that I could compare this to?