A year ago I wrote an article about why trend following doesn’t work on stocks. That article surprised many people. After all, I was mostly known for writing a book about trend following on futures. Why would I diss trend following? And why does a futures guy talk about stocks?
The fact is that I’ve been working with stocks longer than with futures. I’m a quant. I’m not tied down to any particular asset class or strategy. As most professionals, I’m pragmatic.
The point with that article a year ago was to highlight the differences. There’s trending behavior in both stocks and futures, but it’s a very different game. In drawing a demarcation line between trend following and equity momentum, I wanted to make that clear. My concern was with hobby traders who might make the mistake of applying classic trend following models for futures, on stocks.
What is the Deal with the Word Splitting?
I use different terminology for stocks. I’ve stated before that trend following doesn’t work on stocks, but that momentum does. Why bother with this distinction?
Equity momentum is very different. The classic trend following style models are heavily reliant on diversification. In stocks, you get very little of that. The equity game is largely about beta. The market regime is of great importance. Stock selection increases complexity. Leverage isn’t available as it is with futures. There are suddenly many more variables to deal with, while some key features of futures are suddenly gone.
I use different words to highlight the different characters of these markets. You cannot apply the same trading models. Regardless of what system sellers might tell you.
Stocks on the Move
Stocks on the Move has a very similar concept as Following the Trend. The entire book describes one single trading approach, and it does it in great detail. I walk you through the problem first. I’ll go over mutual funds and ETFs, describing what they’re good for and where they’re a bad idea.
I also explain why equities, contrary to popular beliefs, is the most difficult asset class. It only seems easy, if you don’t look closely enough.
Then I’ll move on to telling you why classic trend following doesn’t work on stocks. Don’t worry, I’ll show you all the details and all the simulations to back that statement up. This of course leads to the point of the book. Momentum investing.
In the next section, I’ll detail the building blocks that we need for a proper momentum strategy. There are some very important components here. How to decide on stock universe, how to measure overall market regime, how to rank stocks, how to set position sizes, when to buy stocks, when to sell them, how to rebalance positions etc. I’ll explain these points and give you a set of rules to start out with.
After I’ve given you all the rules, we move on to the results. Like in Following the Trend, I go year by year in detail. It’s important to understand the dynamics of a strategy, not just the end results of a simulation. I try to give you realistic expectations of deploying such models in reality.
In the last part of the book, I go over some of the strategy components again, to see which ones are really important. Does the trend filter matter? Perhaps the ranking method is the key? Or the time frame?
As with Following the Trend, I show all details and all rules in the book. After all, anyone can make up any performance if they don’t show you all the rules. Feel free to test them, use them and modify them.
Buying the Book
You can buy the book right here on this site. The payment, shipping and handling will be done by Amazon.
Wait, if it’s handled by Amazon, why do I direct you to this link on my own site? Well… Frankly because while you pay the exact same amount as you would on Amazon’s site, for some reason I get to keep a much larger part for myself. No, it might not make all the sense in the world, but Amazon pays a considerably higher royalty per book if they’re ordered through this link that I keep posting on this page. Oh, you can buy it on Amazon too of course, both the paper version and the Kindle.
Help! Review and Share
I have self published this book. Publishers claim that they do a substantial amount of marketing, and that this is the reason why books like Following the Trend sell so well. I’m hoping to prove them wrong. For that, I need your help.
If you like my book, please write a review for it. Amazon reviews is one of the key sales tools for trading books. If you have a blog, please write a review for it there. Trading blogs has become a very important medium for making books visible in the first place. Facebook, Twitter, LinkedIn and such sites is where awareness is so important.
Can you help me out? If my self publishing experiment works, and if this book really does outsell my Wiley published book, then there will be more like this published. Help me make this book visible and I’ll keep producing content!