Why trend trading does not work?

EPrado · Jul 13, 2011

Quote from bone:

Quote from bwolinsky:

If you aren't selling when the market is rising, or buying when the market is falling then you are not trading correctly.

If you stay in this business long enough, you come to the realization that trading as a profession attracts alot of very smart people - and that your perceptions about what works and what does not work is, in fact, really quite limited and generally ego-centric. You can make money fading markets, and you can make money with entries along the same bias that you perceive to a trend.
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I love how people come on here and say if you don't use this strategy you aren't trading correctly. That quote of his you pasted is a beaut.

I guess the guys I know who a few weeks ago sold all week long into that big SP rally knew how to trade correctly, they just lost a crapload trading doing it.
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EPrado · Jul 13, 2011

Actually I found a better one:

"At least, in my experience taking a trade in the same direction as the most recent price move generally has less profitability, but if you take a trade against where the market moved, generally you will have better results. This is not a coin flip. If the market rose, we became more overvalued, if the market fell, we became more undervalued relatively speaking."

Since the markets always know when they are overvalued and tend not to continue when they hit this area, your comment makes complete sense.

Looks like my man Surf has a new friend.

bwolinsky · Jul 13, 2011

Quote from EPrado:

I love how people come on here and say if you don't use this strategy you aren't trading correctly. That quote of his you pasted is a beaut.

I guess the guys I know who a few weeks ago sold all week long into that big SP rally knew how to trade correctly, they just lost a crapload trading doing it.
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I think differentiating between trading and allocation is two different things. You don't have to follow those rules if you are allocating to more diversified funds and not interested in swing trading. Investment long term just requires an efficient frontier model software program, though I see nearly zero discussions about that. This is different.

Incidentally, I took a $209,000 loss on c2 shorting the exact same rally on 132 NQ. Ouch. I am, however, up $40,000 from 7 ND from 2391.50, and can now only trade 48 NQ.

EPrado · Jul 13, 2011

Quote from bwolinsky:

I think differentiating between trading and allocation is two different things. You don't have to follow those rules if you are allocating to more diversified funds and not interested in swing trading. Investment long term just requires an efficient frontier model software program. This is different.

Incidentally, I took a $209,000 loss on c2 shorting the exact same rally on 132 NQ. Ouch. I am, however, up $40,000 from 7 ND from 2391.50, and can now only purchase 48 NQ.
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Down 209k on bad trades, up 40k on good trades.

Sounds like a fader.

IMHO, going with the trend keeps people out of the exact situation you ran into above.

I guess I just like trading from a position of strength...call me crazy.....

bwolinsky · Jul 13, 2011

Quote from EPrado:

Down 209k on bad trades, up 40k on good trades.

Sounds like a fader.

IMHO, going with the trend keeps people out of the exact situation you ran into above.

I guess I just like trading from a position of strength...call me crazy.....
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It really is trend trading. Just be patient and wait for an oscillation. Doing this manually is impossible, but if you catch a lower high and a higher low, these produce my best setups. I look at volatility on a normalized, absolute basis for my pairs systems, but the premise without timing on an oscillation takes trades on the open.

EPrado · Jul 13, 2011

Quote from bwolinsky:

It really is trend trading. Just be patient and wait for an oscillation. Doing this manually is impossible, but if you catch a lower high and a higher low, these produce my best setups. I look at volatility on a normalized, absolute basis for my pairs systems, but the premise without timing on an oscillation takes trades on the open.
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I hear ya. I guess everyone has a different definition of selling into strength/buying weakness.

bone · Jul 13, 2011

Quote from bwolinsky:

It really is trend trading.
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Quote from bwolinsky:

If you aren't selling when the market is rising, or buying when the market is falling then you are not trading correctly.
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You sound confused. Besides, Lucias already said he was the best there is in the world as a C2 cowboy.

Ever read the reviews for the C2 systems ? Yikes.

marceck · Jul 13, 2011

Quote from bwolinsky:

The market is not a simple flip of a coin. That might be typically what somebody without a strategy sees, but that is not what a professional sees. This analogy is not conducive to explaining trends in price charts. Using price physics or any strategy for that matter can predict probabilistically where the market is likely to move to, not that it is an absolute that it will. Probabilistic games with price charts are easy with consistent theories to explain the movement of the market, particularly in futures, but it applies to individual stocks and other securities as well. Many without quantitative definitions may as well flip their coin at the start of the day, but that is not the same thing when you use analysis, technical or otherwise, to predict swings in the market.

The lower high at 2375 on NQ looked like a plum time to short the market, and I expect another lower high to come below that level soon, setting up a trade with the bear trending futures despite what is likely to be a brief rally from 2336 to somewhere below 2375.

If you aren't selling when the market is rising, or buying when the market is falling then you are not trading correctly. Any analysis of strategies that do not follow these rules are substantially less robust than the ones that do. At least, in my experience taking a trade in the same direction as the most recent price move generally has less profitability, but if you take a trade against where the market moved, generally you will have better results. This is not a coin flip. If the market rose, we became more overvalued, if the market fell, we became more undervalued relatively speaking.

Timing trading strategies also, are a lot different than allocating capital with the CAPM or efficient frontier, but you should hire a professional to do both of these for you. Unless he is a total moron, there should be at least some opinion of short term direction to time longer term entries, however, statistically in an allocation timing matters very little in the overall results of the investment as in allocating capital to ETF portfolios or any stock or commodity for long term investment rather than for trading short term price swings. Most professionals are not allowed to make these decisions, even though they should. Compliance departments nearly always disallow this, but in the intial stages of investing, it's important to time the long term entries with pull backs, preferably large ones.
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NQ 2375 was a higher high from the prior day as well as a higher low, so I don't really get what you are trying to state with that example. If you mean lower high from the 2421.75 high of 7/8, well that is quite a chunk of space you are dealing with. Bad example of a high odds fade, if you ask me. Always easy to hindsight trade.