Niederhoffer thinks "follow the trend" sucks

[i am nobody]

Please do! Thank you.

I would like to, but it is useless.
Why? Because if you don't even understand that trends have more profit potential, at a lower price, than countertrend, you will surely not understand this math. It would be a waste of energy.
Also, I need countertrendders as i am trendfollower. Somebody should pay me the money.

You can already start with this:
http://www.elitetrader.com/et/index.php?threads/average-of-trades-per-day.291830/page-3#post-4129269

 

[Frederick Foresight]

This trend talk sure sounds good. However, can anyone define trend so that it can be tested?

surf

Sure. If you are in a trade and it is persistently going against you and you are progressively losing more money on it, then price is trending in the opposite direction of your trade. How can you tell, and how can you test the premise of this trend? Keep watching your account balance in real time. And if your trade happens to be on the right side of directional price movement then you can also measure the validity of that trend by the real time pattern occurring in your account balance.

Of course, there are many time frames to consider, and there may be countertrends and such occurring in those different time frames at any moment. But the only trend that matters to you at any one time is the one that is reflected in your account: is it moving up on balance, or is it moving down? And there's your answer.

Perhaps you may think that the trend is illusory because it doesn't continue or because, over a specified period of time, it may be offset by a countermove or series of countermoves thereby invalidating its very premise in your eyes. But even then, the price action over an arbitrarily selected period of time need not be trending on balance in order to capitalize on intermittent trending within it. The trend may not continue after a time, but then, your trade doesn't have to either. And that's all that matters.

 

[i am nobody]

Please do! Thank you.

If the ES moves from 2000 to 2200 it means that the cumulation of all countertrend moves is 200 points smaller than the cumulation of the trend moves.

If there are in total 200 points profits in going short, the profits of the longs should be at least 400 points. If not you can never reach the 2200 level. This is basic math, not rocket science.

2000-200+400= 2200. Now you can add for the shorts any amount of points it will always be inferior to the profits of the longs.

 

[syswizard]

I can mathematically proof that:

1. trading against the trend will always give SMALLER average profits per trade then trading WITH the trend
2. risc reward ratio when trading against the trend will always be worse then trading WITH the trend
3. statistically, risk on losing trades is much bigger trading against the trend then with the trend

This may be true for hold time in days and weeks, but Keith Fitschen, a well known systematic trader PROVED that countertrend trading day trading systems are always more profitable than trend following day trading systems.
BTW: Trend definition ? Look at the Shanghai Stock Index....is the trend UP or DOWN ?

 

[Frederick Foresight]

This may be true for hold time in days and weeks, but Keith Fitschen, a well known systematic trader PROVED that countertrend trading day trading systems are always more profitable than trend following day trading systems.
BTW: Trend definition ? Look at the Shanghai Stock Index....is the trend UP or DOWN ?

One man's trend may well be another man's countertrend.

Differing time frames and so on aside:

..."Market structure" and "good trade location relative to risk"...

 

[i am nobody]

This may be true for hold time in days and weeks, but Keith Fitschen, a well known systematic trader PROVED that countertrend trading day trading systems are always more profitable than trend following day trading systems.
BTW: Trend definition ? Look at the Shanghai Stock Index....is the trend UP or DOWN ?

Every trend can be a countertrend in another timeframe. So what is trend and what is countertrend?
The ultimate proof is: how much profit a day for each system?
Compare it and you know what works best.
I know for me what works best, and think it cannot be beaten by countertrend. But then I should show proof, and that I will never do.

 

[globalarbtrader]

If the ES moves from 2000 to 2200 it means that the cumulation of all countertrend moves is 200 points smaller than the cumulation of the trend moves.

If there are in total 200 points profits in going short, the profits of the longs should be at least 400 points. If not you can never reach the 2200 level. This is basic math, not rocket science.

2000-200+400= 2200. Now you can add for the shorts any amount of points it will always be inferior to the profits of the longs.

View attachment 153936

Hmmm... not sure I agree with this

Suppose we have someone (A) trading short trends, someone trading counter trends / swing trading (B), and someone (C) trading longer trends, and some guy (D) trading mean reversion.

Week 1: ES goes from 2000 to 2100.
A sees a trend after a few days; buys at 2050.
C sees a trend developing after a week; buys at 2100
B was already long @ 2000 from a prior turning point.
D was already long @2000 as the market was undervalued. Sold @ 2100 as was fair value. 100 point profit.

Week 2: ES goes from 2100 to 2200.
A holds (assuming binary positions here)
C holds
B was long; sees turning point and close / sells @ 2200. 200 point profit.
D was flat; thinks the market is overvalued and sells @ 2200

Week 3: ES goes from 2200 to 2100
A sees a trend reversal after a few days; closes and sells at 2150. 100 point profit.
C sees a trend reversal after a week; closes and sells at 2100. zero profit.
B remains short
D thinks the market is fair and closes @ 2100. 100 point profit

Week 4: ES goes from 2100 to 2000
A remains short.
C remains short.
B sees turning point and closes/ buys @ 2000. 200 point profit.
D was flat; thinks the market is undervalued and buys @ 2000.

Week 5: ES goes from 2000 to 2100

A sees trend reversal after a few days; closes at 2050. 100 point profit.
B holds. mark to market profit 100 points
C sees trend reversal after a week; closes at 2100. zero profit.
D closes @ 2100; fair value. 100 point profit.

total profits:
B - 500 points (swing / counter trend trader)
D- 300 points (relative value trader)
A - 200 points (fast trend follower)
C - 0 points (slow trend follower)

I guess the point I'm making is that we can't work out which kind of trader will profit in every market. Counter trend traders can have perfect foresight as here; and so theoretically can do better than a trend follower who has to wait for the trend to turn - even slightly - before getting in. Even though this frequency of market is almost optimal for the fast trend follower they still don't top the table.

Naturally a mean reversion trader will always do well in a choppy market like this.

The longer term trend follower was lucky to get away flat; if the market chopped any quicker they would be bleeding money. This is the 'break even' frequency for the long term trend follower.

Do I think picking turning points like this is easy, or even possible, or that markets trade like that? No, of course not. Do I think that trend following at all speeds, except where you are going to fast to beat transaction costs, is usually a better real life strategy? Yes, and I've put my money where my mouth is.

But I'm not sure you can prove that a counter trend trader will always do worse than trend follower in all circumstances.

GAT
PS also a trendfollower remember, so don't bite
PPS Say what you like about Vic, his book is a lot more pleasant to read than anything by Soros or Taleb...

 

[MrN]

One of points that Niederhoffer most steadfastly advocates is to go with the drift, ie trade/invest in the direction of the long term rise in equity markets.

Some of the critics really have no idea what they are talking about. Can't get over mistakes made years ago to learn something. I'm more utilitarian than that.

Its like with Larry Williams as well. SOme can't get over bickering if he cheated in a contest 30 years ago or not. Personally, i don't think he did. Regardless, The real question is if any of his ideas have merit or utility. If that second thing is true, i could care less about the first, it has no meaning to me.

 

[i am nobody]

Hmmm... not sure I agree with this

Do I think picking turning points like this is easy, or even possible, or that markets trade like that? No, of course not. Do I think that trend following at all speeds, except where you are going to fast to beat transaction costs, is usually a better real life strategy? Yes, and I've put my money where my mouth is.

But I'm not sure you can prove that a counter trend trader will always do worse than trend follower in all circumstances.

GAT
PS also a trendfollower remember, so don't bite
PPS Say what you like about Vic, his book is a lot more pleasant to read than anything by Soros or Taleb...

It all depends from were you start from. I start from a hypothetical situation:

1. Both traders enter and exit at the tops and the bottoms, but 3 minutes after the top or bottom, because most people have to see a reverse before they take a trade. Nobody will take tops and bottoms all the time.
2. Then I calculate the theoretical profit they made. Hypothetical trend profits will always be bigger, that's why the trend exists.
3. I made the assumption that both traders are equally qualified in picking entries and exits.

There are several difficulties that the countertrend trader has, whereas the trendtrader does not have them:

1. Moves with the trend are on average bigger; if not the trend would be the opposite direction.
2. Countertrend trades are shorter in time and reverse faster than trend trades. So more difficult to enter at the right moment, and more difficult to exit at the right moment.
3. If the entry was not good, more probale to get out with small loss if you go with the trend. In countertrend market moves quicker and stronger, so losses grow much faster and bigger.

So in real life the countertrend trader will have more difficulties to time his entries and exits good. His chances to survive a bad entry are much smaller than for a trend follower.

I will post some calculations later. They will be hypothetical, but they will show what I mean.

 

[Frederick Foresight]

One of points that Niederhoffer most steadfastly advocates is to go with the drift, ie trade/invest in the direction of the long term rise in equity markets...

For long term investing that view has obviously had merit historically. For shorter term leveraged trading, there had better be more in that toolbox.

As for your reference to Mr. Williams, please tell me one single thing you learned from him that you actually used constructively in the market that you didn't know already and that hadn't been said earlier by someone else. Specifically, what special insight or contribution does he bring to the table? Serious question.