Jump to content

Trend Following by TrendFollower

Recommended Posts

I remember reading something Ed Seykota stated which was that if you are bullish then you are already in and you are not waiting for the trend to strengthen or for the price to react. This takes a lot of experience and capital to execute but it highlights the point of identifying the strongest trending asset and entering the trade as early as possible. There are different ways to say this and many traders will articulate this point differently but to maximise your profits when trading a trend then identifying the strongest trending asset in any given time is a key requisite. 

When I began my journey into trading I surrounded myself with real traders who were trading and Hedge Fund guys whom I could learn from and obtain vital knowledge from. There is no shame in learning and surrounding yourself by real successful and profitable traders who have more knowledge, experience and skill than you do. I did exactly that when I started my journey. Even now I still do this and I am learning all the time. You never stop learning new things or ways to improve your own trading. No one knows everything and no one is an expert and 100% accurate and profitable trader. 

Share this post


Link to post

I found this very interesting. I am not saying it is credible as the source must be challenged and questioned but there are some very interesting points that are worth consideration. 

https://steemit.com/backwards-thinking/@greer184/the-cult-of-the-elliott-waves

The following is from the Turtle Trader website (now I accept that Michael Covel is the biggest marketer of them all) but nevertheless very interesting read.

Elliott Wave Hype Is Poison for Traders

https://www.turtletrader.com/elliott/

Elliott Wave Junk Sucks in the Gullible

https://www.turtletrader.com/wavejunk/

Now there will be some who think these articles and links are not true and are wrong. That may well be the case, I do not know. 

I am yet to be convinced why the markets are obliged to act according to Elliott Waves and Fibonacci Retracements?  Why must an asset that you are trading either on the long or short side be part of the Elliott Wave structure? 

For me there are experts that can read 'Tea Leaves' who can predict the future from 'Tea Leaves'. There are also 'Astrologers' who can claim to predict the future based on the stars and planets. Are these experts wrong or crazy, not necessarily. They may have a skill set that many do not understand and therefore simply cannot apply. This could be the same for Elliott Wave technicians. If you can use Elliott Wave Theory for trading then why cannot an expert in Astrology and Tea Leaves practice trading and use their skill set to profit from predicting future price action?

As I say Trend Following has its flaws and it has many flaws and this is coming from someone like me who applies trend following principles to their trading. All trading strategies have flaws but which one will give you the best chance to succeed and which one will you find easier based on your own skill set to use and apply?

Share this post


Link to post

Here is another link to something which really makes me think as a trader. I am not saying everyone should believe it but boy does it make you think.

Elliott Wave Principle: Believe This and Go Broke Trading

https://www.trendfollowing.com/2017/11/24/elliott-wave-principle-believe-go-broke-trading/

To offer a balanced argument, the principles I follow (trend following) has flaws. I mean it involves making a lot of small losses. There is no doubt about that. Why should entering once a certain price point has been crossed lead to a successful trade? It may not hence the small losses in search for the bigger winning trade but that is the cost of trend following. I use it because it works for me but someone else could easily use it and it not work for them as they trade the wrong trends or select the wrong asset to trade, etc.

EWT could work for many traders who can apply it effectively and it may be that this article is wrong. That is for the IG Community to judge but these articles do make me seriously think and question EWT that is for sure. 

Share this post


Link to post

The beauty of trend following and following the price action is that is can be applied literally to any asset. Of course some assets will trend stronger and better than others. This is what the trader needs to identify. They need to identify which assets are trending stronger and monitor their price action like a hawk. 

A lot of traders get fixated with trying to find the perfect entry point. They then end up not entering the trade and and missing a large part of the trend. Identifying the direction of the trend and the strongest trend is important. Just as important is to be able to enter into a trade in the direction (not against) of the trend. Then let the price action do the rest. 

Trend Following is actually quite a simple and non complex trading style and methodology. 

Share this post


Link to post

I mention 'Strongest Trending Assets' (STA) quite frequently.

One of the reasons why I started my journey on Trend Following with Commodities was that I found that they tended to trend more than other asset classes. There is a stronger tendency for Commodities to trend which is what attracted me to them and to this date I still trade Commodities using trend following principles. 

Now this is not an invitation for others to simply start trading commodities using trend following principles. I am merely sharing what I actually have done and am currently doing. For some trend following will not suit your mindset, personality or psychology. That is fine as you will find another trading style that will. 

Share this post


Link to post

Bonds are an asset that have been trending strongly upwards with less volatility compared to other assets such as Commodities and Cryptocurrencies over the past year or two. 

So why do people not trade Bonds? I personally think it could be to do with margin requirements but I will let others explain if there are other reasons. 

Less volatility and the ability to use leverage has made Bonds quite an attractive trading opportunity for both more defensive trend followers and more aggressive trend followers using higher leverage. 

I have a Bonds and Gilts thread with numerous posts. Each different asset class will have its time when it is trending which presents a trading opportunity. I believe we have and are experiences this with Bonds. This may also continue for the rest of the year but the price action will confirm my assumption here. 

Share this post


Link to post

When looking at whether to consider using trend following principles or not one must look into which method can give them the best chance of being successful and profitable on a consistent basis year after year based on the time they have to spend learning and trading and on their ability and skill set. 

Share this post


Link to post

@dmedin,

Have a look at my July 31 posts (x2) in relation to Elliott Wave Theory (EWT). I think you will find it very interesting.

 

Share this post


Link to post

I stated something similar in another one of my threads but I felt it was appropriate to share in this thread.

I do not have a crystal ball and I cannot predict the future price action with 100% accuracy or anywhere near so I decide to adopt trend following principles as it does not require precision timing. That is the beauty of trend following. You do not need to buy at the optimum or the lowest point. Timing is one of the most difficult things in trading. There are just so many variables and because I work full time for a living, I feel that trend following allows me the ability to work full time and trade. 

Share this post


Link to post

I would urge anyone interested in trend following to read this book which I am going to share with you. I highly recommend it. It was one of the first books I read many years ago and is still a brilliant book in my personal opinion. 

Share this post


Link to post

@BoJK,

I am responding to you on my own thread as it is not appropriate to start a discussion on this subject in someone else's thread on a different subject matter. 

I never set tight stop losses as I am a longer term trend trader. I do use wider stop losses in line with my personal risk tolerance. Setting tight stop losses means you have to be right more times than not. This makes it extremely difficult to confidently be on the winning side and making profits unless you have mastered the art of trading. I need give myself the best possible chance and this means setting wider stop losses. I am not suggesting anyone else does this as I accept it goes against the conventional wisdom of cutting your losses quickly and short (trend following principles) but I have found over the years by tweaking this to suit my own personality, skills and capital budget that I have been more successful and profitable when adopting wider stop losses. This is just my own personal experience so it may not be the case for many traders as it depends on which asset you are trading, your position sizing, risk management strategy, use of leverage, etc. 

As I tend to trade volatile assets then setting stop losses too tight are suicidal for me. For me setting wider stop losses gives you more room to deal with market fluctuations, short time price volatility and all the market shenanigans that go with trading a particular asset. I do not generally day trade though I have dabbled in the past here and there depending on the opportunities presented. Generally though I am not a day trader so I want to stay in the position as long as possible.

From my experience one of the reasons why traders lose is because they overtrade. Another reason is because their stop losses are just too tight and if you combine both of these then it is a recipe for disaster in my personal opinion. 

Yes I follow trend following principles but that does not mean I agree with all of the theory and have to blindly follow all of the principles. I have tweaked, amended, adjusted over the years to create a trading style and strategy which suits me. That is the most important thing. Find trading styles and strategies that suit you personally and your personal circumstances in terms of time, wealth and ability. 

Share this post


Link to post
Posted (edited)

Stop Loss Discussion - Continued from Above:

@BoJK and @dmedin

There is a notion that one believes that setting tighter stop losses is reducing your risk and setting wider stop losses is increasing your risk. I beg to differ as the notion in which one views this is critically important. It adds context to the arguments why one could consider setting wider stop losses over tighter stop losses. For day trading I get it. However if you are a longer term trader, there are advantages in setting wider stop losses over tighter stop losses.

Tighter stop losses are for a specific trading strategies just like wider stop losses are for specific trading strategies. There is no right or wrong. What is important is selecting the tigher or wider option with the correct trading strategy. This is something which a lot of traders overlook. There is no one size fits all stop loss strategy. Anyone who suggests one should set tighter stop losses is not understanding the bigger picture of how different traders adopt different trading methodologies. 

There are many times in the past (many years ago) when I would place a trade, call the direction of the trend correctly, the trade met all my signals and indicators but I would still end up losing on the trade. The reason for me specifically was that my stop loss was too tight. Volatility is the biggest enemy when it comes to setting effective stop losses. There are times when markets you are trading can move unexpectedly or sharply the wrong way before going back to where it was and continuing in the trend direction. When I am trading the 'Strongest Trending Assets' then I am in the trade for weeks and months. I want to bigger points/profits and I want to use leverage to maximise the amount of profit I make. What I cannot afford is to call the direction right, my signals to be hit but to lose the trade simply because my stop loss was too tight. 

I want my stop loss to kick in when it is clear that my trade idea / assumption / prediction was wrong. That is fine. I have no problem with that. I do not want to stay in a trade where I am clearly wrong but until I am proven to be wrong then I want to stay in that trade. Daily price fluctuations will not allow me to stay in a trade if my stop losses are too tight. To put this in context, I trade using 'daily' and above. I will look at 'weekly' and 'monthly'. There are times when I will go down to the '4 hours' but I am more a longer timeframe trader so having wider stop losses suits my trading style. I accept that shorter timeframe traders may require or prefer tighter stop losses which is fine. There is no right or wrong. 

Edited by TrendFollower
  • Like 1

Share this post


Link to post

@Trevbeats,

I am replying back to you on my own personal thread as I don’t want to sidetrack someone else’s thread. 

Some of the strongest trading assets right now are Silver, Gold and Bonds. There are others too and when I a back at home at the weekend then I shall respond in more detail.

I am away on business and currently using my iPhone to respond and I find it much harder!

Share this post


Link to post

@Trevbeats,

Have a look at Precious Metals that IG offers on its platform:

  • Gold
  • Silver
  • Platinum
  • Palladium

If you risk tolerance can stomach some volatility then you may want to look at:

  • Nickel
  • Soybean Oil
  • Crude Palm Oil

In terms of potential trends which could reverse and present a trading opportunity then you may want to monitor the price action of the following:

  • Natural Gas
  • Live Cattle
  • Corn

From a trend following perspective I like to trade Commodities using the 'daily' but also looking at the 'weekly' and 'monthly' to support any trading views. I think if you can link the price action with the fundamentals in terms of weather conditions, harvesting, supply and demand fundamentals then it will help increase your chances of trading in the direction of the trend. Also sentiment will play a key role as well. Just look at the sentiment in Gold and precious metals in general. 

 

Share this post


Link to post

One of the things I try and identify is where 'short covering' may take place. This is of particular interest to me where I have identified a strong breakout early on.

Some of the quants that trade in milliseconds or nano seconds using algorithms may use some form of moving average crossover or there will be some parameter it has set to exit a trade. These signals and indicators will be a base for them to programme an exit execution to take place. The short covering can amplify any breakout which could be a false breakout, could face a trend reversal or even trend continuation after the breakout. This is why trend following is full of risk and managing that risk is key. 

It is not unusual that a trend follower may have 50% to 70% of losing trades. This is one of the reasons why I only try and identify and pick the strongest trending assets to trade. 

Share this post


Link to post

I just came across this article which is relevant to this thread. 

Trend Following CTAs Back With A Bang in 2019

https://www.alpha-week.com/blog/trend-following-ctas-back-bang-2019

The key is that conditions must be right. This is why Trend Following does not always work in all different market conditions. This is why Trend Following comes and goes. The trend following principles have been around for many years and they will continue to be around. They may change and adapt depending on market conditions but if the conditions are right then Trend Following can be a useful trading style to at least consider. 

For the mere mortals like us there are different signals and indicators we can use. I think following the price action is key. Any laziness or lack of effort in this is an absolute no - no. Living and breathing an asset and its price action with dedication can go a long way.  If you do not have the time to passionately monitor the price action then trend following may not be for you. It takes a lot of time and interest and I accept some traders cannot be bothered or do not have time or interest. For those unless they have a very expensive automated 'also' trend following system then it may not be for them. 

By following the price action, you get a feel of the asset and what makes it move up, down or sideways. You get a sense of how the price may react when certain news is released. There is nothing wrong with using 'gut instincts' based on knowledge, experience and skills / ability of the trader. Of course you cannot use this alone. This needs to be supported by a few key signals and indicators which suit your trading style to try and improve your trade execution.  You do not want to use lots and lots of signals and indicators as this will make it all too confusing.

The trading system you decide upon must have trading rules which you believe in, understand and have some evidence after testing that they can work if the conditions are right. Some will use demo accounts, some will use real live accounts but with very small trades to really test their trading system in real live market conditions. Some will do both. 

Share this post


Link to post

Join the conversation

You are posting as a guest. If you have an account, sign in now to post with your account.
Note: Your post will require moderator approval before it will be visible.

Guest
You are posting as a guest. If you have an account, please sign in.
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.


  • Member Statistics

    • Total Topics
      7,444
    • Total Posts
      37,896
    • Total Members
      47,882
    Newest Member
    AnnaZ
    Joined 22/09/19 04:43
  • Posts

    • How do I switch my account from CFD trading to share trading?
    • That USDJPY turn looks to be confirmed with a break of a potential ending channel in confluence with the Fib 50% and failed retest of the previous Pennant formation.  A solid bearish move on the last two daily candles of the week in line with a late stocks drop is boding well for a sustained medium term bearish phase for this pair.  This may be at odds with other pairs for a few days or so but I expect USD to turn bearish sometime next week, in which case I see this pair dropping hard, which would be in line with the EWT set up of a wave 3 down.  A continued period of stocks weakness would add to the momentum on this pair.
    • Looks like we are getting that relief rallyvon Gold and Silver, which is in line with my A-B-C retrace bearish move road map.  If this continues according to the road map then the current rally is a wave B.  When it concludes there will be a strong wave C down and this is the point to Short if the mood take you.  This is coinciding with both a short term rally on USD (DX) and a late bearish move on stock indices on Friday.  I expect the bearish stocks move to continue for a bit, especially on non US large caps to complete their wave Bs.  We may see a correlation conclusion of these wave Bs between stocks and precious metals.  I also think USD DX will rally a bit further, with GBPUSD in particular putting in a strongish bear move in a 1-2 retrace.  All the main USD pairs except with the Yen are likely to be bearish vs USD.  
×
×