You have chosen an example that demonstrates your point. Now look for stocks, commodities, currencies and so on that do not neatly fit your scenario. If I would trade an index, it would be for a very small percentage of capital for the simple reason it evens out the pluses and minuses of the various stocks and sectors, ie is boring. I prefer stocks, avoiding too much correlation by diversifying into various sectors, with no single position accounting for more than 10% of capital. In any case 8% is for a stock with an ATR of 4%, ie I use 1.5 to 2 ATR as a stop. On a mobile device till Tuesday so I can't check but I do suspect the SPX has not presented a real trend on the charts and does not have a 4% ATR. If there was a good move from June to September, chances are the trailing stop would have locked in a small profit. Add the fact that unlike the funds I am not under any pressure to trade for the sake of showing a return and you have the great divergence between funds and individuals. If on the other hand you have funds that allocated large proportions of capital to limited instruments that basically chopped around in a range, I'm sorry for the folks who put their money in those funds. Perhaps they should have looked for funds which had exposure to emerging markets? Compared to, for example, the SET, the SPX was pretty anaemic in 2012. Analysts seem to think that America and Europe are going to be less than exciting in 2013 and there will be better returns to be found in Asia. Methinks the only money I will be putting into US indices will be in options spreads, counting on limited movement to make money.
SPX is not the only negative evidence, there are thousands of examples (includes stocks) out there that fit the bill. So the question is how you do know if trend following will work for the particular instrument that you are trading? You'd still need to make an educated guess ya? And SPX has been trending alright, it has been trending higher since 2009, anyone can see that on a chart, what no one can see on the same chart is if it'd continue to go higher.
True. I look for a 2B, if I do not get such a neat scenario then a cross of and pullback to a major EMA. Entry with a third of capital, add another third when stop moves to breakeven, final third with a similar move so that overall exposure is breakeven. Then ride the move as high as it will go. All out in one go. No guarantees that anything will work, but if the moves are decent I only need to be right about 35% to 40% of the time to make money. I use trend following basics, but perhaps I am just a swing trader because I sure as heck won't ride out a 20% drawdown or worse - just don't see the point of it. Edit: Using a trend following strategy does not mean that one can blindly trade any instrument and profit. One still needs to pick the right instruments. Any strategy applied to the wrong instrument at the wrong time will lose money.
It is interesting that he said he won't put on a trade unless there are close to 2k examples. It looks like he is trading more shorter term rather than long-term trend following.
I wonder if he means 2k in one market or on more markets. If the latter, then with 100 markets he needs only 20 trades on each, so 2 trades a year mean just 10 years of data.
What criteria do you use to place your stops ? Is it volatility-based or does price have to breach a certain technical level (ie. support trend line, etc.) ? Many thanks,.
Volatility based. I use 1.5 to 2 times the 20 day EMA of the True Range. Far enough from entry that I know if the stop is touched, my premise about the trade is probably wrong for the time being at least.
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I have a self developped trend following program myself with my own funds. The last two years have been rather meager in accordance with the big trendfollowers. In 2011 -1,73% and in 2012 +0,64%. So over the last two years together -1,10%. To say the truth it doesn't worry me a bit. When you are trendfollowing you should know in advance that these periods happen. Many traders on this forum trade for a living I think. It is true that you cannot trendfollow for a living, at least with just your own money. But you can rich doing it.