trend following delusion shattered

[marketsurfer]

Quote from whitster:

you are using the "talented coin" analogy.

it is a poor analogy for the following reasons.

every coin flip is random

price movement is not random.

price movement is based on - opinion ie supply/demand.

at a minimum, if people think that the fact that stock X is moving up is "bullish" that will result in their opinion that it is a buy, and thus we go with greater fool theory.

coins have no memory, no opinion, and no emotion.

people do. people make up a stock market.

so, it's a bogus analogy.

again, at a minimum - trend following is (to some extent) self-fulfilling.

but more importantly, prices do not exist in a vacuum, nor are they random. people make judgments about price. coins do not make judgments about the result of their flips. emotions play a part in the stock market. and emotions are generated, among other reasons, based on people's fear, greed, euphoria, etc.

that, for example, is how bubbles form. they form because of emotional excesses. coins don't have emotional excesses.

you are not making any sense for the following reason:

what you say is "true"--- however--you can't predict peoples emotions into the future based on past price movement--therefore the randomness of a coin flip is relevant based on your statement. you personally entering a trade, is it going to win, or lose? you don't know--is a coin flip going to be heads or tails-- you don't know based on the past flips. see what i mean? the coin flip analogy is relevent to a traders entry-- you make a decision to enter a trade, same decision is made to flip a coin--its the decision to enter or not to enter.

yes, the public, by default, are trend followers--- and we all know what happens to most of the public --- if your greater fool theory held any water, buying new highs should work much more than it does---

why does every study that i have seen clearly indicate that the edge is in buying lows, not buying highs?? if trend trading made sense, buying new highs would work greater than 50% of the time, when in fact it works far less making trend trading an inferior strategy. see larry connors "how markets really work" for the actual stats.

best,

surfer

 

[marketsurfer]

Quote from OddTrader:

That's not enough.

I need a book for "How traders really work" to make money!

this thread is really all you need!

surfer

 

[whitster]

"what you say is "true"--- however--you can't predict peoples emotions into the future based on past price movement"

yes, i can.

and do.

it;s how i make a living

so don';t tell me it can't be done

 

[kiwi_trader]

Quote from marketsurfer:

random entries accomplish the same goal, so does buy/sell and hold.

3 moves ( insert time frame) up-- has absolutely no barring on the 4th and subsequent moves-- will they be up, or down? the concept of trend trading makes no sense whatsoever--- other than stay with winners , cut losers---

in fact, placing a trade in the present direction of the 3 moves ( this is an example, insert any number or time frame) is a statistically inferior method in the stock indexes--- see "how markets really work" by connors for the studies.

best wishes,

surfer

I don't know the thing you trade ms but in mine ... 3 moves up does have a bearing. 3 moves suggests that it is most likely to return to the "mean" (and 4 more so). I (and judging by the return, many others) use this as an excellent point to exit my "trend following" position.

 

[marketsurfer]

Quote from whitster:

"what you say is "true"--- however--you can't predict peoples emotions into the future based on past price movement"

yes, i can.

and do.

it;s how i make a living

so don';t tell me it can't be done

ok. i can't argue with seers and such.

best,

surfer

 

[marketsurfer]

Quote from kiwi_trader:

I don't know the thing you trade ms but in mine ... 3 moves up does have a bearing. 3 moves suggests that it is most likely to return to the "mean" (and 4 more so). I (and judging by the return, many others) use this as an excellent point to exit my "trend following" position.

ok, kiwi. however, trend trading as described in the books, is buying new highs, or selling new lows--- not a mean reversion exiting strategy that you describe.

surfer

 

[kut2k2]

Quote from marketsurfer:

no, let me see if i can explain.

the trend does not exist in the future,

It will if the trend continues. Trends don't automatically end just because you enter them. Some end, others don't. Trend followers are playing an odds game, just like casino owners.

Quote from marketsurfer:

and the future is where your trade is after you make the entry--with me so far??---every study i have ever seen/done indicates that there is no edge in entering a trade in the same direction (trend) as price in the indexes. in fact, the opposite is actually true.

I have not seen those studies, and I don't look at price indexes to determine whether to buy or sell an individual security. Indices are made of many securities, and some will go in the opposite direction of the overall index trend in all time periods.

Quote from marketsurfer:

trend trading is the same as buy/sell and hold

Buy and hold is long-term trend following, and does not apply to, say, daily trend following.

Quote from marketsurfer:

--- see the trend funds abysmal recent performance to verify that they don't close positions very quickly.

The bigger you are, the more inertia you have to overcome. The slowness of big mutual funds to change direction has nothing to do with small and nimble individual traders.

Quote from marketsurfer:

if you flip a coin 6 times, and it comes up heads 6 times--- are you in a heads trend?

best,
surfer

As has been said, this is truly a false analogy.

1) We know the exact probability of coin flipping; we don't know the probability for trend following, except from back-testing. And that probability will be higly dependent on the particular trading strategy used. IOW, not all trend following methods are equal.

2) Coin flipping is random. Human behavior may be rational or irrational but it is never random. Show me the coin that shows the same yearly trend of the DJIA from the Depression to now and I'll show you a highly biased coin.

 

[marketsurfer]

" trend trading is an odds game"


please show me the statistics that indicate entering in the direction of a trend increases ones odds of success.


they simply don't exist, to the best of my knowledge. if you know differently, please provide.


best,

surfer

 

[whitster]

--------------------------------------------------------------------------------
Quote from whitster:

"what you say is "true"--- however--you can't predict peoples emotions into the future based on past price movement"

yes, i can.

and do.

it;s how i make a living

so don';t tell me it can't be done
--------------------------------------------------------------------------------



"ok. i can't argue with seers and such.

best,

surfer"

surfer. i trade futures for a living. it has to do with following order flow (IE PRICE) and making trades

so, don't tell me it can't be done.

i do it

if it was random, like a coin, i couldn't

 

[trend_guy]

everything works some of the time and sometimes nothing works.