Trend Following depends on Prediction

Quote from AFJ Garner:
“…As everyone and his uncle, mother, brother and granny now know, trend followers have increasingly hit bumps in the road over the past decade and in particular over the past two years. The patterns have changed – perhaps temporarily, perhaps not. Something has changed at any rate or these long standing CTAs would have ridden smoothly over the bumps without suffering historically high levels of drawdown. Many explanations for the different market conditions have been put forward: the rise of HFT, Government stop/go policies, globalisation increasing correlation between hitherto independent markets, too may trend followers doing the same thing in the same time frames. The list goes on…”

“…Such analysis is confirmed in the real world by the effective collapse of the methods of various long term trend followers in the mid 2000s: Dunn and JWH were lead to near ruin, Abraham and a slew of others were forced back to the drawing board and made changes to their portfolios and their systems.

2011 and 2012 wrought similar havoc among trend following CTAs. And a similar rush of head scratching…”


Hi AFJ,

I’ve been hearing about the woes of trendfollowers, especially John W. Henry & Co., for some time now. My understanding is that these guys tend to be breakout traders, buying breakout highs and lows and trying to catch a few long term trends and ride them as far as possible.

Your post made me go look at a few longer term charts from last year. There seem to be trends occurring that last up to 6 or 8 months in many futures and forex markets. Do you think that trendfollowers rode those trends successfully, but then got chopped to death the rest of the year?

Here's an index chart from last year:

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Quote from jack hershey:

You are correct in what you have said.

People who enter the trading field begin with your comment as a starting point.

Obviously, then they set goals for their future work.

I found a set of 56 elements and I tested to find if there were more. There are no more.

These elements are now defined precisely mathematically.

If market participants were competing, then I would become a parasite since that would be appropriate considering my small size. So in Harris's terms I am a parasite who is technically inclineded by virtue of my systemic orientation and that I have a complete and tested set of elements.

Each information parcel is identical as it is being supplied to me. In other words I am delivered consistent exacting information content and this information content fits into 1 of 56 unique elements of a complete set.

Surf, you were given one by me and I gave you the rules for using it to always be able to make money. This is a segway to what you left out of your posit.

there is much much more to undrstanding the operation of the market than you present. All you presented was the common starting point nearly everyone, including yourself, uses.

Trend drivers are the next step. So is understanding the unique role of market variables and market measures whether they be direct, indirect, induced or substitution effects.

Each new information parcel from any market is either of value or not (statistically significant). That test is made for every unique possible information parcel. This is invariant in any full system of elements.

Often an information parcel begins as an unknown element. So there is a further requirement to make it known only as a specific known element. therefore, this criteria has to be so high quality that once known it can never dislocate into another mathematical definition. The term usually applied is that the element is irreversable.

Most people do not get beyond this advanced beginner level.
The reason is that they do not understand the weight given to the partnership involved in trading. For example, it is not included in this threads scope and bounds.

The mind works 24/7. 1/5,000th of the activity is conscious. And the merger of the two is done while sleep occurs.

Most people never have the experience of waking up and having the merger completed. A person knows he has had that experience clearly in a given field.

the result is that mental shortcuts appear and finally with respect to the field a fully differeintiated mind is operational and part of the partnership. "You always know you know" is the symptom.

Partnering with the market is like partnering with a car and driving it.

Trend drivers are always in operation for expert traders. There are no questions about the market that come to mind, ever.

The mind of the expert, to paint the picture for readers, is just to the right of the Present where the future comes into the Present.

The market has no noise, no flaws nor any anomalies. An incomplete trader whose mind is not fully differniated sees things. Often the mind replies to the senses that it is seeing noise, flaws or anomalies and is not getting any signals from the constant flow of indicators.

Someone in this thread introducd myticism. They had the same problem at Plymouth Rock and environs, so they killed people.

Remarkably some people see me as needing a straight jacket. the viewrs get to see this imprint. Surf says he has me on ignore.
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I`ll help you out here,Jack.Though,it hardly changes anything.
 
Quote from TheMagican:

No one seems have a slightest clue that trend following is a very pooooooor money velocity method,because of the DAILY SETTLEMENT!To make money trendfollowing you`d need the price to be closed higher then open for months in a row,everyday,without any gaps(up/down), or pullbacks.How often that happens?
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Quote from AFJ Garner:

Thank you Jack for your pleasant response. I do not need or seek "help"; I merely enjoy sparking rational and civilized discussion, to which you have contributed. The majority of people on internet forums, particularly anonymous ones like this, enjoy the surrogate violence of being unpleasant in words. Perhaps they also enjoy physical violence, who knows?

The search engines will not have caught up with it yet, but if you are interested you can no doubt find the attached thread which I have written elsewhere, in a place where, happily, I can repel those with a vitriolic intent:

"David Attenborough Explains Internet Brutishness"
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How's Curtis doing these days?
 
How did I miss this thread?!

I find it unbelievable that some people (strongly) oppose the idea that directional trading requires predicting. These same people are the ones who say "I don't predict, I react," or "I don't predict, I trade based on statistical analysis."

If you have statistical analysis that tells you that in a certain situation price is more likely to go up than to go down, and price does that particular thing and you believe based on your data that price is now more likely to go up than to go down, you are predicting that price is going to go up.

Any trading that is non-random is predicting.

If you do not believe that price is more likely to go up, why would you take a long position? You are predicting that, based on the current situation, price is more likely to go up than to go down.

If you are going to flip a coin 10 times, I predict that you will get heads 5 times.

If I were allowed to bet on that so that the closer you got to 5 heads, the more money I made, I would definitely take that bet. Based on statistics I predict that you will get heads 5 times.

Excellent thread, AFJ.
 
all trading that is not just gambling (and I have nothing against that) attempts to ascertain a positive expected value over a time horizon that is relevant to the trader. So, in that sense all trading methods attempt to be predictive. Not attempting to be predictive, in this sense, would indeed mean that one was content to be a gambler.
 
Quote from 1a2b3cppp:

If you have statistical analysis that tells you that in a certain situation price is more likely to go up than to go down, and price does that particular thing and you believe based on your data that price is now more likely to go up than to go down, you are predicting that price is going to go up.
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Even in that very case you are taking for example, there is no prediction involved, the trade is taken based on:

- the observation of the past,
- the assumption that the future will *statistically* reflect the past.

One has to assume that the outcome of any particular trade is a random event.

You are not taking a particular trade because you are predicting it is going to be win, you are taking it because it is one in a series of hundreds of trades with similar circumstances, which have a statistical edge (taking *all* the trades that have similar circumstances, you will make money - *THAT* is what the prediction is about, *NOT* the current trade)

And there is the beauty of trading with an edge - you don't have to predict what the market is going to do, and you don't have to care whether it is actually doing it or not.
 
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