EVERY TRADER NEEDS A TREND TO MAKE MONEY
Trend following trading is completely different that what most investors are accustomed to which is a buy and hold strategy. Trend followers wait for a trend to begin before they enter the market and once the trend has shown signs of deterioration trend followers are exiting the market. Trend trading takes discipline and emotional control to stick with the strategy through the inevitable market ups and downs. It seeks to capture the majority of a market trend, up or down, for profit even if that means experiencing uncomfortable market volatility.
One of the great trend followers or our time, John Henry explains this best:
John Henry explains this best:
Trend trading is best seen as reactive and systematic by nature. It does not forecast or predict markets.
It requires that you have strong self-discipline to follow precise rules (no guessing or wild emotions). It involves a risk management system that uses current market price, the equity level in your account and current market volatility. Trend traders use an initial risk rule that determines your position size at the time of entry. This means you know exactly how much to buy or sell based on how much money you have. Changes in price may lead to a gradual reduction or increase of your initial trade. On the other hand, adverse price movements may lead to an exit for your entire trade. Historically, a trend trader’s average profit per trade is significantly higher than the average loss per trade.
Risk Management is Top Priority:
Trend following always has defined exit protocols to control ‘injury’ to your account. Stop losses and proper leverage usage are standard practice. Trend following also has low to negative correlations with most other investment opportunities. It eliminates exposure to groupthink and toxic assets. Eliminating exposure is a winning move whereas hedging can actually increase your exposure. Trend following is the best protection for when bubbles pop and everyone starts running for cover.