Trend Trading to the MAX

actually, according to the book "trend f*llowing" by cov*l-- in which i am thanked in the preface--- LOL ! trend trading involves having many small losers to every big winner.

best,

surfer

 

You need a good re-entry strategy if you want to cut your losses "shorter" without missing too much of the trend.

I think you're on a good track, just I wouldn't be so mechanical about these percentages (3%, 4%, etc.) because it's like you want to squeeze the market into your expectations. You should try to adjust your expectations function of market's action.

 

I heard it a lot, but lately even staunch trend followers as Van Tharp changed a little their position: he now recommends to close early a fraction (i.e. half) of your position for some smaller profit target and move your stops to breakeven as soon as possible.

"Classical" trend following systems' large drawdowns could give you a heart attack, and really test your belief in your system's profitability.

• Quote from marketsurfer:
  
  actually, according to the book "trend f*llowing" by cov*l-- in which i am thanked in the preface--- LOL ! trend trading involves having many losers and one or more big winners.
  
  best,
  
  surfer

 

interesting. i did not realize tharp changed his views.

thanks!

 

I couldn't find a quote by Tharp, but the following is by another author in Tharp's newsletter (in the past this would've sounded like a heresy):

"Back in the day, when trend-following was king and long- term position trading was the only method getting any press, using a profit target or anything other than a trailing stop was considered heresy. And for that type of system, it probably is. But many folks read stuff that was written for a largely trend following audience (including some of Van's early work) and make broad conclusions that profit taking exits are never useful. Questions about this show up on trading forums (including Van’s Mastermind forum) all the time.

But more and more, I see good traders and system designers using hybrid exit strategies to optimize their results. Taking partial profits is not heresy if the exit strategy helps to capitalize on the strengths of the system design. Markets, even trending ones, have become more choppy than ever before. “Three steps up and two steps back” has become the normal operation in many markets.

Trading professionals adjust for this by taking partial profits at pre-determined profit targets. They may let the rest of the position follow the trend. Or they might take the rest off at a higher pre-determined level. It all depends on whether the strategy is designed to capitalize on really big trends or not.

This brings me back to the book draft that I’ve been reading. Another seasoned pro who has made consistent profits in the markets talks about his exit strategy. He takes 1/3 of his position off at a small gain, just to put the trade in the black. He then takes 1/3 off when the trade has made a bit more than he risked. The last one-third is used to trail a stop and try to stick with a longer term trend."

 

Run,

It sounds like you are getting away from your system, by adding on to a trade. If you are going to trade a system you should have set rules that tell you when/if you can add to a position.

Also Grob made a very good point that stocks with different volatilies deserve stops that are different distances away. You saw this with the trade today. You could adjust your stops to a set equity at risk, 3% of total equity, and adjust position size and stop price to reflect the volatility. The higher the vol the smaller the position and the greater the distance to the stop.

5yr