My Hedged Fund - Another "Trend-Following" Post

Your rule 3 states this -

Be patient with winning trades; once a trade is put on, give it time to work, give it time to insulate itself from random noise. Be enormously impatient with losing trades, small loses and quick losses are the best losses.

My question is this -

Say you buy something on Monday and it goes down on Tuesday and Wed and even Thursday how will you determine whether to give the losing position 'time to work' because the 3-4 day downmove might be random versus 'being enormously impatient with losing trades, small loses and quick losses are the best losses.'

I'm not trying to be a smart dick but that rule 3 looks like it's going to hinder your trading far more than it helps because it contradicts itself. In effect you'll only know after the fact whether to give the trade the room it needed (assume your timing will always be slightly off) or whether it was right to cut it very quickly.

Another question I would have for you is this -- by whichever metric you use to enter long positions, would all your longs have been in place had you started a month earlier? Or two months earlier?

The way I operate is if I add a new market, it may already be "long" by the system rules, so I need to wait until it is "naturally" stopped out before looking for a new signal to go long.

In other words, if I was starting a trend fund on Jan 1st, unless the market retraces a few percent, I would be waiting a while to establish my first trade.

It's also interesting that you've got a discretionary element in there. In my opinion you should keep the technical/trend elements separate from any "views" you may have on the market as they are at completely different ends of the investment strategy spectrum

Any thoughts JRP? You're a bit of a trendie yourself, no?

http://www.trade2win.com/boards/trad...ous-metal.html

What is your opinion (If you don't mind)?

You've got about 4 things to respond to there Boston, should keep you busy

Having read Boston's rules, the only one i'd have a mental conflict with would be no.6; When sharp losses in equity are experienced, take some time off. Many traders employ this rule and I can see why you would if you're mainly a discretionary trader. However in my experience of trading a medium term FX trending strategy, sharp losses in equity more often than not immediately precede opportunities to position yourself in the early stages of trends, as the markets become less cluttered due to the weeding out process that naturally has to occur. Could this rule actually end up costing you more Boston? I know when i've had 6/7 losses in a row as part of a more prolonged drawdown, i start to get a bit excited (weird i know), because usually good things start to happen if you keep taking your trades.

I would second that. I read a report on the web once (can't find it now) which examined how systematic funds occasionally underperformed the market, but when that happened it was usually time to invest in them.

Obviously this is all a bit anecdotal in the sense that just because you have 7 losses in a row, doesn't mean you can't have another 7 losses in a row .. but generally this doesn't tend to happen.