Direction is everything.

[HowardCohodas]

you need a way to predict direction if you are trading outright positions. This prediction may come from a mechanical system or it may come from discretion or a mixture of the two.

Once again, grasshopper, your opinion and good research have stark differences. Research into random entry with effective trade management shows that having no opinion on the market and taking naked positions can still result in success given that the market trends about 20% of the time.

 

[DionysusToast]

I presume HC - this research was carried out over 3 months and 29 trades.

Must be significant...

 

[HowardCohodas]

I presume HC - this research was carried out over 3 months and 29 trades.

Must be significant...

Apparently your search engine foo has failed you again. Yes I did such research, but others more competent than I have as well.

 

[JRP2891]

Trend trading is for bag holders.

Take the ES. Most days it makes some very nice intra-day rotations. It reaches a point and reverses, often violently and often to the opposite extreme of the day or prior day.

Now - by 'trading the trend', you discount yourself from getting in at this reversal point. You immediately put yourself in with a more mediochre group of traders that wait for the next pullback and have less profits and larger stops.

When this market reverses, it is not because of people 'following the trend', there is obviously something that causes the reversal at this point. It is obvious that the balance of money it takes to move the market has suddenly changed in favour of the opposite direction. It becomes VERY obvious when the market gets to the opposite extreme that the smartest traders were those that participated in the reversal. It is also true that those who need the most confirmation of the trend will be the ones holding the bag when the market reverses again as they got in last.

Of course, one conventional piece of trading wisdom is "never catch a falling knife" but we should consider the fact that a bunch of people are getting in at the reversal points and a bunch of people are getting out too.

So whilst conventional wisdom says you can't get in at these points, it's pretty obvious that some people are...

This kind of generalisation is very misleading about the effectiveness of trend following. But DT, i would suggest you never try it as your ego seems a little too inflated to be wrong 50% of the time :cheesy:.

 

[amit.s]

Once again, grasshopper, your opinion and good research have stark differences. Research into random entry with effective trade management shows that having no opinion on the market and taking naked positions can still result in success given that the market trends about 20% of the time.

I agree- you do not need to know what will happen in order to trade well. You can watch the markets with an open view and then act in response to what you see in front of you. It can allow you to be much more flexible.

 

[meanreversion]

Trend trading is for bag holders.

You immediately put yourself in with a more mediochre group of traders that wait for the next pullback and have less profits and larger stops.

Yikes, John Henry a mediocre trader? Ditto Richard Dennis and David Harding (Winton Capital, ex-founder of AHL)?

Sign me up as a mediocre trader please!!!

 

[DionysusToast]

Yikes, John Henry a mediocre trader? Ditto Richard Dennis and David Harding (Winton Capital, ex-founder of AHL)?

Sign me up as a mediocre trader please!!!

;-)

Of course, the point has been exagerrated.

Still - for those who go by the wisdom of 'the trend is your friend' and 'cant catch a falling knife' - how exactly do they think reversals happen & what magical skills do those getting in at those points possess ?

Sorcery ?

 

[scose-no-doubt]

Isn't that mainly the market makers and institutional buying at levels of perceived value/targets

 

[meanreversion]

;-)

Of course, the point has been exagerrated.

Still - for those who go by the wisdom of 'the trend is your friend' and 'cant catch a falling knife' - how exactly do they think reversals happen & what magical skills do those getting in at those points possess ?

Sorcery ?

They are long gamma?

 

[wackypete2]

I prefer sorcery.
You should see me sorce!

Peter

 

[meanreversion]

Never reveal your sorces.

 

[Prawnsandwich]

In my opinion, following strong trends provides excellent trading opportunities, both in terms of trade success probability and Risk Reward return...

So trend following simply means trading a market which is moving in a definite direction, preferably strongly....eg with stocks this could be weeks, days or intraday momentum plays off news or earnings etc...

The trick is to get in at an early enough stage in the move, and to get in at a position that allows you to define initial risk in terms of stop placement and a possible initial target to allow an estimate of possible risk reward ratio, and therefore decide whether the trade is worth entering in the first place....

For this type of trading, the process of analyzing potential trades to assess possible Risk Reward ratios, filtering out the poor set-ups, is a critically important element in my view..

 

[Splitlink]

That's the way I try to go. It has its drawbacks because the question of whether it is a pullbacl or a continuation is always facing me. It is, also, a place where Mr Market likes to go to and fro taking out stops. Nevertheless, IMO, in trading, which is full of uncertainties, the prababilities here are best.

 

[forker]

Price always gives clues and if you followed economic and political data you have the luxury of validation of what's happening. The problem with chart only traders in my experience is their lack of understanding in what is actually driving the markets. I recall recently one that didn't even know why the $ was devaluing. He thought he was the best thing since sliced bread. Since the recent events, he has given back all his profits from that trend.

Trend trading is easy, range trading is easy, identifying when a trend is over alludes most traders. In fact I would go as far as stating the transition from trend to range to reversal is where most traders struggle.

Don't get caught up in the common perceived knowledge that you can't identify Market changes and as a result, you cannot successfully take advantage of the change. For starters, you need to adjust your expectations when it does happen. You cannot simply apply trending strategies to ranges and although you can apply range strategies to trends you will probably get out with a fraction of the profit.

Someone mentioned catching a falling knife. I can personally vouch that such a strategy is very profitable indeed. You can employ it in both trending and ranging markets. But let me stress that every falling knife isn't worth trading. If you see huge pressure in the move then the odds are against the trade succeeding

 

[oildaytrader]

Direction is everything , but finding direction isn't easy with failed trends and failed t/a set ups , late entries etc etc etc.wtf.80 % of trends fail.

 

[meanreversion]

I recall recently one that didn't even know why the $ was devaluing. He thought he was the best thing since sliced bread. Since the recent events, he has given back all his profits from that trend.

Trend trading is easy,

Two points here -

1. understanding the fundamentals. It's a commendable idea, but you could get 10 esteemed economists together and get 11 views. You mention that your friend didn't know why the $ was going down - do you know why it's rallied so much recently.. is that something you anticipated?

2. trend trading is simple, but not easy. In fact I would argue it's a tough style of trading to follow, because it requires patience and fortitude, along with a low win %. It's the reason so few people are genuine trend followers, and prefer to try to pick tops/bottoms.

 

[forker]

Two points here -

1. understanding the fundamentals. It's a commendable idea, but you could get 10 esteemed economists together and get 11 views. You mention that your friend didn't know why the $ was going down - do you know why it's rallied so much recently.. is that something you anticipated?

2. trend trading is simple, but not easy. In fact I would argue it's a tough style of trading to follow, because it requires patience and fortitude, along with a low win %. It's the reason so few people are genuine trend followers, and prefer to try to pick tops/bottoms.

The old "10 economists 10 outcomes" debate has no relevance to trading. They are not traders full stop. It doesn't take an economist to assess Market driving factors such as inflation, interest rates, consumer spending, debt, and so forth. I believe it was around august were the fed began to speak about printing more money and although it wasn't set in stone, the Market anticipated the move an the devaluation of the $ commenced. It didn't take a rocket scientist nor an economist to see that.

When the fed finally announced the details the Market had already price in. What was interesting though is the continuous release of USA data that suggested recovery... Many traders expected massive moves but again it didn't take a rocket scientist or an economist to see interest in selling more $. This was validated by a breakout an an almost immediate retraction with volume. I hope this makes sense...

Regarding trend trading. I disagree with your statement since I don't find them difficult to identify and take advantage of. Trends follow an easily identifiable stepping pattern.as for your low win% , I am not knowledgeable in your trading methods but I have a very good win rate when it comes to trends.

 

[Splitlink]

Two points here -

1. understanding the fundamentals. It's a commendable idea, but you could get 10 esteemed economists together and get 11 views. You mention that your friend didn't know why the $ was going down - do you know why it's rallied so much recently.. is that something you anticipated?

2. trend trading is simple, but not easy. In fact I would argue it's a tough style of trading to follow, because it requires patience and fortitude, along with a low win %. It's the reason so few people are genuine trend followers, and prefer to try to pick tops/bottoms.

I wonder if what you say is true? It could well be that picking tops and bottoms is easier than trend following but it does not seem so, to me. I think that I will stick to following a trend.

I do agree with what you say about economists. There are so many different opinions that it is not possble to deduce the trend direction from them.

The low win % rate on tops and bottoms is good as long as you have the direction correct most of the time. I don't have that confidence. because the averages that I follow will, almost certainly, be going against me. That means that I would be entering in, what I thought, to be a countertrend. Sometimes I would be right but mostly wrong. I prefer to trade with the trend.

 

[meanreversion]

The old "10 economists 10 outcomes" debate has no relevance to trading. They are not traders full stop. It doesn't take an economist to assess Market driving factors such as inflation, interest rates, consumer spending, debt, and so forth. I believe it was around august were the fed began to speak about printing more money and although it wasn't set in stone, the Market anticipated the move an the devaluation of the $ commenced. It didn't take a rocket scientist nor an economist to see that.

When the fed finally announced the details the Market had already price in. What was interesting though is the continuous release of USA data that suggested recovery... Many traders expected massive moves but again it didn't take a rocket scientist or an economist to see interest in selling more $. This was validated by a breakout an an almost immediate retraction with volume. I hope this makes sense...

You must have been enjoying these moves, seeing as you anticipated everything. Where is the $ going to next?

 

[HowardCohodas]

All this discussion has re-invigorated my interest in trading EUR/USD. It will probably be a month or so until I can devote the time to test my ideas with real money. My proposed approach tends to trade no more frequently than a couple of times per week, but requires paying attention several times a day.

I'll continue to watch this thread to see if my enthusiasm remains when my time will permit this activity.