Is this seriously what trend traders do?

[Sprout]

Trend following and trading a trend are not the same thing. They operate on different timescales and require different skillsets.

Understanding how to define a trend in it's smallest components, it's essential elements would be a good start.

Top down, bottom up, both are part of a complete whole enchilada.

 

[Traderjohnsblog]

I feel the need to chime in here if you don't mind. A tradable trend can be differentiated from a false breakout by the retest of S/R. Entries based on this are never underwater for very long. Usually seconds if at all.

With regard to trend determination. There are many ways to determine a trend, most of them are correct. Higher highes, fractals, swing levels, they all tell the same story using different techniques.

With regard to exits. A trailing stop strategy will almost always fail a trend trader. The reason is because will routinely retrace to at or near previous micro S/R levels. This means that a trail stop strategy will kick the trader out of good trades and skew the odds against them.

I wrote an article about breakouts that discusses some of what i am trying to say with more clarity. You can read it here

“What day traders don’t know about trading a price breakout and how it can cost them big time.” https://medium.com/@johnlarsen_38718/what-day-traders-dont-know-about-trading-a-price-breakout-and-how-it-can-cost-them-big-time-e40cdd879320

 

[777]

I made this thread because I have heard individuals say that people who do trend following make a bunch of small losing trades but then they finally get a large winner.

My own backtesting demonstrates that you need big winners to offset the losers. You also need to take every trade because you don't know when the massive one is coming.

I just reverse-engineered the way they must trade based on what they said. I have not met a trader who has a consistent system for determining the trend. Many people say when support becomes resistance, when higher highs and higher lows appear, when a moving average changes course, etc. Then, what you have is people who think the price is moving one way and enter protected by a small stop for a situation in which they are wrong. And they are probably wrong. They keep entering being "intelligent" by using stops and they might eventually get it right. Since they cannot tell which way price is moving I made my comment about why not enter with random prices as stocks tend to move up over time.

@Handle123 you said sometimes it takes you a month to recoup your account from a loss? You do counter-trend trading and building bigger positions as it goes against you I believe you said.

The few people I've spoken to on this site who I feel may actually be successful traders (and yes you are one of them) trade this way. I don't mean they add to trades going against them, but they are absolutely counter-trend.

And this is from a guy who spent a lot of time absorbing the jjrvat method and even quantified it into a 100% mechanical style that tested profitably (fuck your gurus) although to be fair I completely changed it as it was originally a scalp system and as jjrvat was either unwilling or unable to explain how he did it that way, my only way to have positive expectancy was to hold every trade as long as possible.

I even talked with someone who had membership in anek's channel although I mean the way they really traded not the program on here, and that wasn't even trend following, it was bottom and top calling, sort of, which is different.

All this being said, "trend followers" don't even agree on how to identify a trend, so they're practically entering randomly, and infrequently price goes in their direction which they rationalize as the trend, even though they got it mistaken lots of other times they began to create a position.

Successful trend followers are not almost entering randomly.

However, If everyone agreed on a great trend following system with the exact same set of rules, that exact system would stop working.

 

[Simples]

All this being said, "trend followers" don't even agree on how to identify a trend, so they're practically entering randomly, and infrequently price goes in their direction which they rationalize as the trend, even though they got it mistaken lots of other times they began to create a position.

The first part is true, nobody agrees on definition of trend. That is for you to find yourself, which might or might not help you depending on everything including trading timeframe, holding period and risk logic.
But leaping to conclusion that successful traders enter "randomly" is unwarranted. To understand a methodology, you need to research all its rules and their possible implications (complex/chaotic realm), information you don't possess. This is different from trader to trader, and made difficult by the fact that the larger majority of active traders have losing strategies. It is hard enough to backtest one's own strategy while minimizing bias, but to backtest other people's, is virtually impossible without getting to know all details and how they make their trades, how they get information etc. Notice, not even the successful traders themselves might fathom all the reasons why their system works, or in which cases they can abruptly stop working correctly.

Trying to emulate losses in order to find the few winners that make up for them, doesn't make any sense at all. Of course every trader want 80-100% winners. But if you truly attempt to hold as long as possible, you'll be God if you achieve beyond 50% with low risk (consistently predicting long-term future)! If you scalp or exit at targets, getting high percent winners is easy, but won't save you from bad times in the markets or provide huge risk-adjusted returns.

Stop worrying so much about what others are or aren't doing, and focus on what you want to achieve, and then come up with ideas how you can make it work.

 

[Canoe007]

I made this thread because I have heard individuals say that people who do trend following make a bunch of small losing trades but then they finally get a large winner.

Correct - at the upper most and most naive-view.
Except that is over simplified and how trend trading would appear to a novice or someone who got a partial explanation of trend trading. Perhaps someone started explaining at the simple and didn't get into the details.

My own backtesting demonstrates that you need big winners to offset the losers.

Correct, if you've got poor entry selection and are accumulating a bunch of losses.
With quality selection of entries with a high expectation (probability) of continuing the trend, then you have an accumulating mix of:

• small losses,
  
• tiny losses,
• tiny or small winners,
• medium winners,
• large winners.

I'm ignoring the break-evens, as they are few (at least in my trading) as the tiny positions tend to fall into a tiny loss or a tiny win.
If you have medium or large losses, you're really doing it wrong.
When you first start trend trading, three guesses which category has the most "hits".

Trend traders work on developing setups and early position management that minimizes the first category, either avoiding them entirely or resulting in greater numbers of the second, or better yet, of the third. It's easy to harvest profits from the medium and larger winners. And very satisfying to see the refinement of setups & management resulting in the numbers of small losses, tiny losses & tiny wins having a huge bias towards tiny wins. Much nicer to be accumulating tiny wins instead of small or tiny losses. I've explained it to family that it's easy to get wins, but far easier to get losses, so the profit comes from avoiding and minimizing the losses. That's true for most (all?) trading, but for trend trading on the second, minute & hour basis, it's critical.

You also need to take every trade because you don't know when the massive one is coming...

Correct - if you're stupid enough to take every trade/entry indiscriminately, then the accumulated losses will leave you in the position of needing that big win to save you. (watch for gambling terminology used by those traders...) That may work occasionally. It is highly unlikely to work over time (99 44/100% certain not to work over time). Actually, I've never met anyone for whom this worked over time. Ask any of the tens or hundreds of thousands of new traders that pissed their capital away that way.

I just reverse-engineered the way they must trade based on what they said. I have not met a trader who has a consistent system for determining the trend.

Too bad you got a limited explanation on trend trading. Reminds me of all of the old books on violin making where the authors weren't luthiers nor apprentices, but then wrote a book on the way that violins must be made, or - another popular favourite - how the varnish must be made. (interesting to be in a violin maker's workshop and see which tools have dust (they are props) vs. which they use; too bad we can't do the same for traders...)
Mine is consistent. So consistent I've coded it. Many other trend traders like this.
Note that once we identify one entry setup that is profitable, we continue to look for additional entry setups (more opportunities for profit). So you may have had an explanation of trend trading from someone who had multiple setups. And different setups may benefit from different position management early in the position. So I can understand how you ended up with your impressions.

All this being said, "trend followers" don't even agree on how to identify a trend, so they're practically entering randomly...

Of course they're all different. That doesn't mean it's random. That's really messed up logic. You're not new to trading; you expect everyone to trade the same?
Each will have identified their own setups, based on their "understanding" of the market and the methods they use to "view" the market, and all adjusted according to their understanding and tolerance to risk.

 

[Chris Mac]

Correct - if you're stupid enough to take every trade/entry indiscriminately, then the accumulated losses will leave you in the position of needing that big win to save you. (watch for gambling terminology used by those traders...) That may work occasionally. It is highly unlikely to work over time (99 44/100% certain not to work over time). Actually, I've never met anyone for whom this worked over time. Ask any of the tens or hundreds of thousands of new traders that pissed their capital away that way.

I agree 100% with your post.
I would just add that searching for big win with huge accumulated losses worked decades ago with hedge funders like George Soros, Michael Steinhardt, Julian Robertson... They were so big that they were the market ! So they were able to be the trend.
Today, these kind of strategies are impossible.

CM

 

[Canoe007]

One thing. I believe there's a discrepancy in the way I take profit compared to the majority of those Trend Trading.

I could easily be wrong, but I get the strong impression that other trend traders tend to have a profit target for each trade/position and harvest profit that way. I do not understand why. This has me going hmmm.

Remembering that I only trade seconds, minutes & hours, closing everything before EOD: I follow the trend very tightly. As my trend/position continues, I stay with it until:

• EOD - x minutes,
  
• price goes sideways:
  • as time progresses, I start scaling out, taking profit,
    
  • trend may resume; as confirmed, I scale back in,
• price reverses:
  
  • I scale out, exiting on "confirmed reverse",
  • depending on it being a qualified setup, that confirmed reverse may signal an entry in the opposite direction.

I understand it. It works for me. So until I understand and can backtest a 'target profit' strategy, I have to stick with this.

But if my impression is correct and the majority use a 'target profit', there must be a reason why, and I guess that reason has to be profit and/or risk management.

 

[comagnum]

Trend traders numbers as a whole have large draw downs - as you can see below, the higher the the ROR the higher the draw downs. Agriculture traders have the highest ROR & draw downs. Disclaimer - I am not a trend trader.

Trend traders index

Stock traders index

Discretionary traders index

Systematic traders index

Agriculture traders index

Option traders index

Source IASG - Historical performance - free site, check for yourself.

Peter Brandt is a hall of fame trader - considered one of the best of all times with a ROR of 50% and worst DD <11%, this spans almost 30 years!

 

[ironchef]

Trend traders numbers as a whole have large draw downs - as you can see below, the higher the the ROR the higher the draw downs.

A trend trader, or any trader can win 40% of their trades and still do very well with outstanding $ mgmt. If you can't handle taking loses your in the wrong business. Agriculture trades have the largest gains with the largest draw downs.

Trend traders index
View attachment 178172

Stock traders index
View attachment 178170

Discretionary traders index
View attachment 178171

Systematic traders index
View attachment 178174

Agriculture traders index
View attachment 178175

Option traders index
View attachment 178176

Source IASG - Historical performance - free site, check for yourself.

Peter Brandt is a hall of fame trader - considered one of the best of all times with a ROR of 50% and worst DD <11%, this spans almost 30 years!

So, on average, traders overall are doing about twice as well as buy and hold SP500?

 

[bone]

If you have to be flat at each Trading session close, you are NOT a legitimate TREND trader. By necessity, you are also Trading retracements, corrections, and market consolidations.

So few traders comprehend the time element in trend.

The best references I can refer you to are Drummond Moving Averages and the legit Pete Steidelmeyer Old School Gangsta Market Profile.