Trend Following is brilliant

Discussion in 'Trading news and analysis (syndicated content)' started by Michael Batnick, Apr 10, 2014.

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  1. Michael Batnick

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    "It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight!”- Jesse Livermore

    Academic research has observed that momentum is a real phenomenon, markets trend. Assets that have performed relatively well will continue to perform relatively well and likewise, “cheap” stocks often get cheaper.

    Trend followers are not concerned with what they’re trading. It could be a currency, commodity, bond, stock, it doesn’t matter. Their job is to spot trends and hop on until the market tells them “this is your stop.” They don’t care about the fundamentals, the story or EV/EBITDA. They leave that to much wiser men. The essence of trend following is understanding that markets will vote on the security , their job is to tally the votes and be on the winning side, long or short.

    Trend followers stay with winning trades and have no patience for losers. You will never find a trend follower watering the weeds and pulling out the flowers, they let their winners ride. They don’t take profits just for the sake of taking profits.

    Following trends is much easier said than done and there are times when markets are not conducive to trend following models. What will the successful trend follower do during said times? Sit out! The successful trend follower has no time for egos.


    While Trend following is a brilliant way to trade, it doesn’t work all the time. But, show me a strategy that does and I got some deep out of the money options to sell you.

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    The Irrelevant Investor
     
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