Trend Following--Another Nail In The Coffin

Discussion in 'Trading' started by marketsurfer, Jan 26, 2007.

  1. Here is a trend-following/"upgrading" system for trading mutual funds with an excellent 25 year record of independently verified performance of trading with trend-following rules:

    http://www.fundx.com/class.cfm
    http://www.fundx.com/spchart.cfm

    Upgrading Follows Market Leadership/Trend-following:
    Upgrading is based upon the observation that few, if any, money managers consistently excel. Instead, we observe a wide range of performance returns, typically with only a small percentage of professional money managers ever invested in the right sectors of the equity market at any given time.

    This is because each money manager has a particular style that works well in some, but not all market environments. Market leadership rotates between large-cap and small-cap stocks, growth and value styles of investing, international and domestic areas. Leadership changes because economic conditions change. But most fund managers don't change their particular styles when the market leadership changes.

    Since market leadership is forever rotating, we move incrementally toward the top ranked funds by progressively selling the lower ranked funds and reinvesting in the new leaders. This continuous process provides an effective way to participate successfully in a broad range of investment opportunities as they develop.

    #1 out of 13 newsletters for 25 years.
    #1 out of 30 newsletters for 20 years.

    Source: Hulbert Financial Digest - July 2005
     
    #41     Jan 27, 2007
  2. But if I get paid off 7:1 for tails, as opposed to 1:7 for heads, which bet should I take now?

    What's with everyone's obsession here with flipped coins? Does a coin have memory? Does a coin discount the fact that it landed heads 9 times out of the last 10? How often does a real-world trade represent a 1:1 payout? Let the coin die please.
     
    #42     Jan 27, 2007
  3. hear hear
     
    #43     Jan 27, 2007
  4. I wouldn't call what they did in the study trend following. It simply proved that, in the short run, there is a strong tendency to regress. Is anyone surprised that buying stocks that were up 7 straight days is not a great approach if your holding period is less than a week?
     
    #44     Jan 27, 2007
  5. I agree, as defined in the study, but what was defined was a break-out strategy not a trend following strategy.
     
    #45     Jan 27, 2007
  6. The payoff amounts are already taken into consideration in that paper: they are reflected in the average returns following the up and down trends. The evidence in that paper is overwhelming that fading the trend is consistently profitable, and following the trend is consistently unprofitable.

    I certainly acknowledge that it doesn't prove that all trend following methods are losers. However, it does convincingly demonstrate that the most straightforward approach to trend following doesn't work.
     
    #46     Jan 27, 2007
  7. If you consider trading breakouts a "straightforward approach to trend following", then there is a huge communication gap between what Trend Traders know as trend following and what non-Trend traders perceive as trend following.
     
    #47     Jan 27, 2007

  8. what non-linear states makes perfect sense.



    It must be nice to be able to make up your own definitions and speak in such obscure ways. Have you considered a career as a cult leader?

    :D
     
    #48     Jan 27, 2007

  9. the entry--either it moves in the right direction immediately or it does not. the next move in any sequence ( if a move occurs) is either up or down--just like heads or tails on a coin. it makes sense.


    does 9 moves in one direction, make the 10th or more moves in the same direction more probable?
     
    #49     Jan 27, 2007
  10. I think communication is often impossible. If you have different definitions of the terms you are trying to communicate with than the person you are trying to communicate with there is no possible way to reach a resolution unless you stop and try to agree on the meaning of every word. Rots o ruck.
     
    #50     Jan 27, 2007