Unfortunately, it appears that I may be in the process of getting whipsawed. This is likely due to a temporary stalemate currently underway between the bulls and the bears. Once this resolves, I will hopefully start making money again.
Trend followers can make money just as easily in up or down markets, but sideways, choppy markets can be tough.
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2 Geniuses:
Hey Danny,
Thanks to your reccomendation, I purchased and am reading Michael Covel's book Trend Following, 2008 update/edition.
I'm only 30 pages in so far but I have to admit I'm a bit confused. The author is clearly biased against anyone who uses 'discretion' in trading decisions (i.e. market knowledge, personal intutions, economic reports, etc) - I may be judging the book way too early because I have 400 pages left, but I assume the author is going to talk about price being the trend follower's tool that they utilize. Price and only price.
I assume I'll get there in the book eventually, but how do trend followers deal with the volatility of prices? i.e. not an upwards trend and not a downwards trend, but up down up down up down? and how do you know when a trend has begun and when it has ended? Will I get all these answers throughout the book?
Hello,
I think you are going to enjoy Covel's Trend Following. You are right, Covel isn't really big on using news or economic reports for trading, and rightfully so, in my opinion. There is simply no evidence to suggest that this kind of strategy works. Maybe there is someone out there with a 20 year track record who trades off reading newspapers and watching the news, but nobody seems to be able to find him!
Michael Covel does talk about using price as the only indicator, and provides an iron-clad rationale for doing so.
Trend followers deal with choppy, trendless markets by taking small losses. That way, when a trend does come about, they still have capital to take advantage of it.
Volatile prices also calls for reduced position sizes. If you look at my holding, I have 2 shorts PCBC, and SUN. PCBC is about 1/5 the size of SUN simply because it is so much more volatile.
A lot of the trend followers mentioned in Trend Following use price breakouts to determine their entries. For example, if Commodity X hits a new 30 day high, they will buy. Personally, I often buy stocks after they hit a new 26 week high or short a new 26 week low. Moving averages are a good way to analyze trends as well.
Furthermore, if you would like a more practical method for trading, I would also read The Complete Turtle Trader by Covel.
Hope that helps.
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