- The Market
- Winning and Losing
- Investor v. Trader: How Do You See the World?
- Fundamental v. Technical: What Kind of Trader Are You?
- Discretionary v. Mechanical: How Do You Decide?
- Timeless
- Has Trend Following Changed?
- Trend Following Modus Operandi: Follow Price
- Follow the Trend
- Handling Losses
- Conclusion
- Key Points
This chapter is from the book
This chapter is from the book
This chapter is from the book
Key Points
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Ed Seykota: "All profitable systems trade trends; the difference in price necessary to create the profit implies a trend."
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Trend Following is based on simple universal laws we can all learn.
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No one knows how high or how low a market will go. No one knows when a market will move. You can't undo the past, and you can't predict the future. Prices, not traders, predict the future.
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Trend followers buy high and sell low. This is counterintuitive for most people.
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Using "common sense" is not a good way to judge or trade markets.
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Losses are a cost of doing business. No one can be right all the time. No one can make money all the time. Trend followers expect and handle losses with objectivity and detachment. If you don't have losses, you are not taking risks. If you don't risk, you won't win.
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Trend Following is a classic targeting of an opportunity. Bill Dunn, a trend follower for over 25 years, named one of his funds "T.O.P.S." for "targets of opportunity systems." Don't mistake Dunn's terminology. He is not predicting.
- Price must go either up, down, or sideways. No advances in technology, leaps of modern science, or radical shifts in perception will alter this fact.
A trend is a trend is a trend, Gertrude Stein would have said if she were a trader . . . Once you have a game plan, the differences are pretty idiosyncratic.
Richard Dennis42
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What if they told you that the best way to get to point B, without bumping into walls, would be to bump into the walls and not worry about it. Don't worry about getting to point B, but just enjoy bumping into the walls.43
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"If you take emotion-would be, could be, should be-out of it, and look at what is, and quantify it," says John W. Henry, pontificating from the owner's box at Fenway Park on a perfect Sunday afternoon, a bottle of spring water at his side, "I think you have a big advantage over most human beings."