[BlowFish]

Originally Posted by thalestrader »

Hi Blowfish,

Do you think that would be true of an intraday trend following type day trader as well? In other words, a day trader who always played for a potential trend day, using a trailing stop or a MOC strategy rather than scale out at targets, etc. Would such a trader need to pyramid to be net profitable, in your opinion?

Best Wishes,

Thales

Interesting question my hunch would be yes though it is just a hunch really. It would certainly improve things if it is a 'real' trend following system. I guess it depends what you call a 'trend following system'. I actually have a personal category 'old fashioned trend following system' which might be different to other peoples definitions.

One of the characteristics (for me) is ensuring you are positioned for every single trend (so channel break out PA break out or similar) by taking every single BO you will get whipsawed somewhat and hence the 60 65% figure. To me this epitomises trend following systems. Of course there are all sorts of methods that attempt to trade with the trend or 'run one unit' that are perhaps more discretionary but I view those as 'methods that trade with the trend' rather than 'trend following systems'.Could be that I am talking at cross purposes.

Kiwi would be better qualified to comment and may very well tell me that I cam completely wrong. I should say it is more a hunch based on lots of anecdotal evidence. I should say if you are scaling out then those portions that you scale at 1:1, 2:1 and even 3:1 I would evaluate separately and would not classify those portions as 'trend following' even if they where entered 'with the trend'.

Incidentally I re-read Market Wizards over Xmas and was surprised the rather high number of the wizzes that used good old fashioned trend following (simple trigger, solid money management).

[Kiwi]

My answer would be "you have to test it."

If you get persistent trends then scaling could be a good solution. It depends whether the number of persistent trends you jump into outweighs the number of reversals you get because a second entry is "late."

My own strategies are trend based and profitable. Adding is absolutely unnecessary ... much better to catch one of the early pullbacks with a full load than catch one partially loaded and add some half way through the trend. But if you had a solution that really worked (proven) then cool.

IM experience scaling in and out has much more to do with smoothing the discretionary experience as any form of optimization of results. But there are lots of ways to skin the cat - just define a strategy and test it.

[DugDug]

Originally Posted by BlowFish »

Incidentally I re-read Market Wizards over Xmas and was surprised the rather high number of the wizzes that used good old fashioned trend following (simple trigger, solid money management).

This is exactly why over the years I have tried to best capture trend trading- in previous trading i was always get long get short and hang on. I guess now though (in my current situation - more time, more disastisfaction ) I am trying to see if you can get the best of both worlds. Intraday jobbing, and getting on trends early to minimise the losses inherent in taking every trend breakout. Smoothing the PnL.
But I am approaching it from the point of view of building a position from the intraday jobbing. This may be tough/hard/impossible, and I am leaning to the opinion that while it all forms part of a portfolio strategy, you really do need to actually separate the entries and exits out and match them to their time frames and individual strategies. Like a mini fund to funds. This creates its own issues, as even having a very simple trend trading strategy in itself has so many variables in terms of what can make it profitable etc; plus the varying markets it needs and the capital drawdowns etc;
This also raises the issue of trading a portfolio using trend trading v trading the trends in an individual instrument..... very different.

However - on saying this my thoughts are still going back to the simple method of for whatever strategy you use, take two thirds off, and let one third run when the strategy goes with the overall larger trend (counter trend trades by definition should not be run)... this will naturally allow you to participate in a trend, allow you to pyramid (off the smaller time frame entries) and allow you to also take part profits - smoothing the PnL. Without really doing too much more than letting the market dictate what it wants to do. No real need to worry about multiple strategies etc; you kind of end up being a trend trader by default. (Clearly however this raises the issues of when to exit....this should be covered in some definition of the longer term trend)

The only downside I see (assuming you can combine strategies) is that what would be considered a profitable intraday strategy would have its PnL results/returns bastardised.
In two ways...
1) you either have to take a bigger number of contracts on entry (than normal), and hence any losses would be larger OR
2) if you take the same number of contracts on entry, your wins will be smaller as there will be many trades that you should have taken a profit on, but did not, and they return to BE or a loss.

[BlowFish]

Kiwi,

from your previous posts you said pretty much what I expected. However your "trend based" strategies I don't think I would classify as 'old fashioned trend following'. OFTF

Just out of interest will your system catch every trend without fail or do some slip through (presumably by missing 1 or 2 trends you miss 3 ,4 or more whipsaws)? Personally I tend to think of pullbacks after a trend is established somewhat differently to OFTF. I guess as long as there is a pullback somewhere you will get a position? If there is not an 'acceptable' (deep enough and close enough to the start of the trend) I guess you don't?

it all depends on how one defines a trend and then how one chooses to enter. Waiting for a pulback is certainly a valid approach, I am just not sure I would call that 'trend following' in the 'old fashioned' sense.

I am not sure I am contributing much here, though if I can coax stuff out of Kiwi maybe so

[BlowFish]

Originally Posted by DugDug »

This is exactly why over the years I have tried to best capture trend trading- .

After re-reading wizards it made me think too. I figured use a spread bet account so you can trade small size and diversify. Diversification is another important factor imho, these systems tend to use diversification to smooth the equity curve. The thinking being that all you need is one or two instruments on a roll to offset any whipsawing in others. If you approach it from a portfolio point of view trading different systems on the portfolio is likely to help but simply taking 20 fairly un corelated instruments in the first place is likely to be simpler). The turtle document lists there basket for example. Actually there is quite a lot to be learnt about other aspects of trend following from it.

[DugDug]

Yes - trend following is the ultimate educator in many aspects - running profits, cutting losses, position sizing, discipline etc;

I actually started reading the Soros on Soros book the other night.... I think his track record shows he is the ultimate market wizard.

"Being so critical I am often considered a contrarian. But I am very cautious about going against the herd; I am liable to be trampled on"
"most of the time I am a trend follower, but all the time I am aware that I am a member of a herd and I am on the look out for inflection points"

He also does not necessarily diversify.... like typical trend traders in the CTA managed futures camp. His forte is really going for the jugular when all the ducks line up and as he says :"be a pig", pyramiding in, running it. (it was Drukenmillers idea to short the pound, George told him to do it in a bigger size and go for it.)

(Now to emulate George Soros and only do a fraction as well as he would be nice....however his returns over the long term are only high 20% - great returns on large money - but it was his business that really helped make him the money. Starting with 5mil getting 30% a year, still will not make you a billionaire unless you trade other peoples money as well.)

There are great websites devoted to trend trading by itself.... very different to here. They cover a lot of this. but its not as fun a site, and not applicable to many here.

I digress, this is more intraday trading, and building a position.....

[BlowFish]

I found the Jim Rogers interview interesting (he formed Quantum with Sorros, broadly speaking he decided the plays, Sorros executed them analyst & trader if you like). Interesting on all sorts of levels but just not something you or I (or anyone else probably) could emulate. Tudor Jones was another (though he perhaps was less discretionary basing a lot on Elliot)

That is the big appeal with simple trend following systems they are something anyone can learn, probably in no more than a day. Of course having the confidence and discipline to follow one is a different matter, particularly with the lumpy equity curve.

[Plaste]

Originally Posted by BlowFish »

After re-reading wizards it made me think too. I figured use a spread bet account so you can trade small size and diversify. Diversification is another important factor imho, these systems tend to use diversification to smooth the equity curve. The thinking being that all you need is one or two instruments on a roll to offset any whipsawing in others. If you approach it from a portfolio point of view trading different systems on the portfolio is likely to help but simply taking 20 fairly un corelated instruments in the first place is likely to be simpler). The turtle document lists there basket for example. Actually there is quite a lot to be learnt about other aspects of trend following from it.

Well, that's exactly what I do. I trade a long term trend following system, basically a stop and reverse system. I then trade a medium term trend following system that exits on a time stop and then in addition to that I trade a short term divergence system on a basket of stock market indexes. All end of day. All with a spread betting company. The graph shows the results of every trade I'd made up to the end of last year. (Only the last couple of years were traded as outlined above. I started out trading Aberration but as its results degraded over time I've added my own systems). One losing calendar year, compound annual growth of about 21% per year.

Hope that's interesting to you.

Tom.