Victor Niederhoffer on Trend Following

[Ferru]

I was reading Victor Niederhoffer's criticisms of trend following earlier - Negative Feedback and Trend Following, by Victor Niederhoffer : Daily Speculations.

Significantly, Niederhoffer has no good counter-argument to the idea that the success of trend followers over many decades is evidence that trend following works.

However, he does raise an interesting point about whether, when we think we see a trend, our brains are deceiving us, and we are in fact seeing a random collection of price bars which happen by chance to lead from Point A to Point B. In other words, the market is walking a random walk, and when we say things like 'the bulls are getting really excited' or 'the market is soaring now that it's broken through resistance', we are being deceived by randomness.

Personally, I think trend following does work, and will continue to do so until such time as investors psychology changes (ie forever). However, he may be right about people being fooled by randomness, as the simulated chart on this page attempts to demonstrate: Why I Am Not a Trend Follower.

Any thoughts?

Jeff

 

[FringFX]

of course trend following does work.... the bulk of (quick) trading profits comes from following the trend. even in consolidations, there are mini/micro trends.

I think i need to point out that trading is a complex arena and there is no right or wrong per se; traders have myriad opinions and experiences. it would be ideal for you to research on your own and experience things yourself... and rely on yourself and your trading beliefs...... Try not to be easily convinced by other traders' opinions or experiences --- if you think trend following works since it really does for you, then that's the reality for you and therefore you should stick to that belief until you experience otherwise.

 

[wino59]

Here is the bottom line...people will see the trend they want to see.

Lets look at Gold is it in an uptrend or down trend? I say down because I am a short term trader, but a long term trader is going to look at it and say it is up trend.

At the end of the day it doesn't matter, as long as you make money.

 

[Brumby]

However, he does raise an interesting point about whether, when we think we see a trend, our brains are deceiving us, and we are in fact seeing a random collection of price bars which happen by chance to lead from Point A to Point B. In other words, the market is walking a random walk, and when we say things like 'the bulls are getting really excited' or 'the market is soaring now that it's broken through resistance', we are being deceived by randomness.

It is post modernistic thinking where there is no absolute truth or objective reality. It is up to each person to define meaning i.e. anything goes. You will find many of this type of similar reasoning in Philosophy forums.