When was the last time you read a trading book written by a real hedge fund manager? Did that book give you any details on actual trading methods?
Think back to the last few trading books you read. Were they written by professional authors, bloggers and lecturers? If they were, they were likely better written than mine. They were probably more entertaining and offered easier solutions and quicker gains.
I don’t deal in wishful thinking. I don’t sell trading systems. I manage institutional money. I trade for a living. My point of view will probably be very different from the other trading books you might have read.
Following the Trend is a book for professionals or those determined to become professionals. I will take you on a ride through my world. The world of large scale systematic, trend following futures trading. Some of this world is excellent. Some is a complete nightmare. My book will show all of this without bias.
You will get all trading rules. Yes, no additional rules will be for sale on this website. I’ll give you a robust set of rules strong enough to be used as they are. Then I’ll point you in the right direction for how to develop this further on your own.
Conventional Wisdom About Trend Following
Trend following is all about finding the right indicators. You need to carefully experiment with variations of oscillators and moving average lines. Finding the right settings are key. The best thing is to invent your own indicators and settings.
Trend following trading systems are extremely complex. You should have a Ph.D. in physics of mathematics. If you don’t have this, you are better off buying a system from an author or blogger. A few thousand bucks should do it.
The entry and exit rules are critical. Spend all your time developing the exact entry and exit criteria. Use the optimizer in your back testing software for this. Or pay a blogger to help you.
You can do professional trend following on just a few instruments. All you need is to trade the Nasdaq or the S&P. They are big and liquid, so you don’t need anything else.
Trend following on individual stocks works great in up and down markets. As long as you have the right indicators.
Once you have a great trading system, everything is really easy. Just follow the signals. Take the trade once per day and hang out on the beach the rest of the time. The money will be rolling in.
Everything in this section is complete nonsense. Except this paragraph.
The Reality about Trend Following
Buy and sell rules are almost irrelevant. There are not a whole lot of different ways that trend following can be done. The exact method or indicator you use does not have a big impact.
Constructing a robust trend following trading system is not terribly difficult. People who tell you that this is the hard part either didn’t understand or want to sell you their trading systems.
The key part of professional trend following is diversification. Trade all asset classes and plenty of markets in each. Trade live stock. Trade lumber. Trade soybeans. Trade the Bund. Trade platinum. Trade natural gas. Trade everything. At the same time.
The biggest single factor for your bottom line is your asset mix. How you chose your asset classes and markets is the key decision point.
It’s very far from easy to trade trend following managed futures. You will lose on up to 70% of all trades. Often you will have big losses. The day to day volatility can be severe at times. Sometimes you get periods of a year or more when you just keep losing.
If you don’t properly understand the nature of trend following you will not succeed. It doesn’t matter how good your trading system is. Unless you are fully prepared for how it behaves on a daily basis you don’t stand a chance.
Buy and Hold is for Consumers
Learn to overcome these problems and you will have a big profit potential. Outperforming the equity indexes are easy. Outperforming mutual funds is even easier. What people fail to realize is that the reward to risk ratio on equity indexes is horrible. Beating them is no feat. We are shooting much higher.
In the 22 years from 1990 to 2011 MSCI World Total Return gave an annualized return of 4.7%. The largest drawdown it saw was 54%. That means that at the worst point you had lost over 11 years of normal performance. But the equity market always goes up in the long run. Right?
During the same period the core strategy presented in the book gained 17.9% annualized. It had a maximum loss of 20%.
Learn proper trend following. The professional way. Your reward will be very high annual compound returns at very acceptable drawdowns. It will not be easy. It will not be quick. But it will be profitable.
Don’t Just Follow the Trend – Follow the Pros
Are you impressed by the big CTA hedge funds? The ones managing hundreds of millions showing big positive returns during bull and bear markets? They are extremely secretive about what they do and how they trade. Can you keep a secret? I can tell you what they do. And I can prove it.
I will show you how to reverse engineer these funds. They are trend followers and there are not many ways to do that. They all look different but they are in fact the same. Take one robust trend following trading strategy. Just one. Doesn’t matter which one as long as it is reasonably robust. Then vary asset mix, time frame or risk factor. Just these three variables. This is enough to replicate most large CTA funds with correlations of up to 0.85.
Do you want to know how all this is done?