Richard Dennis made lots of money with trend following in the 1970s. He did not do well later when trend following seem to lost its effectiveness later on. Why did trend following fail to work as well in the past few decades?
Why did trend following work well in commodities in 1970s but lost effectiveness later?
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Trends existed in the 1870s, 1970s, and certainly will in the 2070s. Maybe indicators and such newfangled stuff that didn't exist back then are blinding today's traders.
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Nothing in trading is as easy as just following a trend line like a tracing book.
I always roll my eyes/laugh...when people think they can be successful and 'dumb' at the same time in trading.
I wouldn't necessarily describe, or word it, as "lost its effectiveness" though.
Trading is kind of constantly evolving and is part art. It takes a skilled person...in their given instrument or segment...to realize this.
Try to kind of think of the market ...as mountains/landscape...and the animals and people that live there. -- or a battle between good and evil, or positive and negative forces constantly battling.
I always roll my eyes/laugh...when people think they can be successful and 'dumb' at the same time in trading.
I wouldn't necessarily describe, or word it, as "lost its effectiveness" though.
Trading is kind of constantly evolving and is part art. It takes a skilled person...in their given instrument or segment...to realize this.
Try to kind of think of the market ...as mountains/landscape...and the animals and people that live there. -- or a battle between good and evil, or positive and negative forces constantly battling.
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It helps to have a major bubble in commodities for trend following to be so effective. Inflation was over double digits back then and has basically retreated since then...disinflation. Disinflation has led to a financial paper bubble (stocks/treasury bonds) and therefore led to a deflation of commodities. If +10% inflation comes back...I bet trend following will be very effective again in the commodities space. Remember, traders use to do pyramid trading in gold and made bucks!
Agree with this. High inflation offers great opportunity to traders whereas disinflation is great for buy and hold stocks
The market is an "open system", which means it will change as new data or actions are introduced. As such, techniques that worked in the past won't work now as people become familiar with them and so become market "neutralized". This is why any published cookbook step by step "how to trade" strategy won't work. Once the answers are made public, they lose their effectiveness. The trends are still there, but you will have to develop your own techniques for finding them.
Like in everything there is an evolution. You should adapt yourself.
Houses are not built anymore like 20 years ago.
Cars are not built anymore like 20 years ago.
Almost nothing is still like 20 years ago.
Why would trading be an exception?
It didn't
Backtested performance of 37 futures contracts. The blue line shows trend following systems.
Whilst there was certainly outperformance in the higher inflation period that ended in 1990, it's still working (the plot is slightly out of date, but that wouldn't change anything).
GAT
It didn't
Backtested performance of 37 futures contracts. The blue line shows trend following systems.
Whilst there was certainly outperformance in the higher inflation period that ended in 1990, it's still working (the plot is slightly out of date, but that wouldn't change anything).
GAT
Trendfollowing will always outperform the rest just because trend is the result of the optimal evolution of prices. It is mathematical. But a lot of (or rather most) people don't seem to understand that.