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Attachments: Trend Trading
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Trend Trading

So in conclusion, it appears that trends DO exist. The only problems are they can only be seen in hindsight, and they are statistical in occurrence. That is, they occur in a statistical Poisson distribution. Neither technical analysis nor fundamental analysis is of much help in identifying them before they occur. Trying to predict the future more than a few minutes ahead is futile. If that is the conclusion, the best we can do is look back and see what may be trending, and then use the best methods we can find to try to enter those trends and profit from them. Some will end just as we try to enter them, and some were just a statistical anomaly. Our methods must allow for those. - G
Hi G,

I was hoping that you might comment on my EJ Entry this morning and my overall approach. I see that EJ has been Trending for a couple of weeks and recently had a minor Pull Back. I entered at 132.702 with three 0.1 positions. This represents a 0.3% commitment.

At 30 pips I took off 1 position and moved my SL to BE. My plan now is to wait and see. I have a little profit and 2 positions running without TP. If I see a surge maybe I take off another or not. My initial SL was 40 pips.

I have a tendency to move my SL to BE too early without letting the trade breathe. Could you comment some more about how you manage your SL initially and Trailing.

Best, AG
Do not dwell in the past, do not dream of the future, concentrate the mind.
Quoting AlbinaGrande
Hi G, I was hoping that you might comment on my EJ Entry this morning and my overall approach. I see that EJ has been Trending for a couple of weeks and recently had a minor Pull Back. I entered at 132.702 with three 0.1 positions. This represents a 0.3% commitment. At 30 pips I took off 1 position and moved my SL to BE. My plan now is to wait and see. I have a little profit and 2 positions running without TP. If I see a surge maybe I take off another or not. My initial SL was 40 pips. I have a tendency to move my SL to BE too early without letting...
Got closed out at BE, but at least a few pips. AG
Do not dwell in the past, do not dream of the future, concentrate the mind.
Quoting AlbinaGrande
Hi G, I was hoping that you might comment on my EJ Entry this morning and my overall approach. I see that EJ has been Trending for a couple of weeks and recently had a minor Pull Back. I entered at 132.702 with three 0.1 positions. This represents a 0.3% commitment. At 30 pips I took off 1 position and moved my SL to BE. My plan now is to wait and see. I have a little profit and 2 positions running without TP. If I see a surge maybe I take off another or not. My initial SL was 40 pips. I have a tendency to move my SL to BE too early without letting...
That's not trend trading. That's just trading a move due to news. Secondly, you closed off one of your trades quite quickly, which was due to the market moving back relatively quickly as well (due to a typical news action/reaction).


In any case, to do this as per a trend trade, you would enter with a single 0.1 and then wait till you had at least 100+ (or some reasonable range) pips in profit on the first trade. Then you leave it open and place another 0.1 trade. When you place this one, you may go ahead and place your SL at -40, but also move your SL on the first trade to -50 pips (which locks in 50 pips profit on it out of the possible +100 you could get if you closed it now).

From that point, there are two expected outcomes:
- If the market continues up, you'll do the same with the 2nd trade (increasing its SL to lock in profit) and add on a 3rd 0.1 trade, with SL of -40.
- If the market turns back and takes out those trades, you'll be in for 10 pips profit.

+10 pips isn't much, but then again, the market was obviously not ready to trend steadily enough upwards to keep your trades in profit (i.e., not that it's a bad trade by any means, but just that the market moved the way it did).

However, if the market does continue to move in that direction, you should have an initial trade in profit of 150+, a 2nd in profit of +50 and your 3rd trade at BE. That's the point you're trying to work toward.

Don't confuse this process with putting on a trade and then closing them off after a short time. That's what others do in other systems/threads. This process is different.
Quoting AlbinaGrande
Hi G, I was hoping that you might comment on my EJ Entry this morning and my overall approach. I see that EJ has been Trending for a couple of weeks and recently had a minor Pull Back. I entered at 132.702 with three 0.1 positions. This represents a 0.3% commitment. --Good-- At 30 pips I took off 1 position and moved my SL to BE. My plan now is to wait and see. I have a little profit and 2 positions running without TP. If I see a surge maybe I take off another or not. My initial SL was 40 pips. I have a tendency to move my SL to BE too...
Hi AG. Welcome back. The pair selection looks good. I'm entering EJ as well. Trade size is conservative. I have no problem taking off some profit early if that's your system. We like profits. My only concern is that to trade trends effectively you do need to give it time to trend. Of course, that has to be balanced against managing risk, but your risk was small on the trade to start with and you've already reduced it by removing 1/3rd of the trade in profit.

I don't like auto trailing stops because they never seem to adjust the stop as I would like, so I move mine manually. Usually I don't move the stop at all until I'm at least 1 X sl ahead. Then, usually my first move is to move the sl about 1/2 the distance toward BE. So then I'll be running with 1.5 X my initial sl and that helps me stay in the trade until the trend has time to develop.

So IMO the initial sl at 40 pips was a little tight to start with given the average volatility on this pair. I'm not sure of your method there, but I rarely set mine less than 45 or 50 pips, though I'll exit early if things look bad. I wouldn't have moved the sl until I was at least 1 X sl ahead with the remaining positions and then I'd have moved it only 1/2 towards BE, reducing the remaining risk on the trade by 1/2.

Usually that's my method on sl. Moving it manually 1/2 the distance to BE in the first move when the trade is about 1 X sl ahead reduces the total trade risk by 1/2, which is significant, while still giving the trade 1.5 sl room to breath, which is also significant. I think you already knew you were moving your sl to BE a little early and needed to give the trade a little more room to breath, but you are risk adverse (as am I) and wanted to remove the risk from the trade as soon as possible. I think you can do some of both and perhaps stay in a better balance between staying in the trend longer and trading to reduce risk (always). Does that make sense? - G
Quoting Graviton
{quote} Hi AG. Welcome back. The pair selection looks good. I'm entering EJ as well. Trade size is conservative. .....Moving it manually 1/2 the distance to BE in the first move when the trade is about 1 X sl ahead reduces the total trade risk by 1/2, which is significant, while still giving the trade 1.5 sl room to breath, which is also significant. I think you already knew you were moving your sl to BE a little early and needed to give the trade a little more room to breath, but you are risk adverse (as am I) and wanted to remove the risk from...
Thanks so much G and Nefser. I really appreciate the feed back. You are right G. I am Risk adverse, and maybe a little too much so. My instincts are good, but I need to trust them a little more. The notes above are very clear and spot on. In general I have used ADR as guide to SL, about 50% Daily range depending a bit on Trend smoothness and where Price seems to fit with momentum.

AG
Do not dwell in the past, do not dream of the future, concentrate the mind.
Quoting Nefser
{quote} That's not trend trading. That's just trading a move due to news. Secondly, you closed off one of your trades quite quickly, which was due to the market moving back relatively quickly as well (due to a typical news action/reaction). ..... However, if the market does continue to move in that direction, you should have an initial trade in profit of 150+, a 2nd in profit of +50 and your 3rd trade at BE. That's the point you're trying to work toward. Don't confuse this process with putting on a trade and then closing them off after a short time....
Hi Nefser,

Thanks for your input. I guess that I was not clear in that I was trying to have the best of both worlds with an early small harvest to get a toe in and to help cover the costs of trading. The remaining positions are my longer term positions to capture as much of the trend as possible. Of course, this may not be a viable approach. That is the wins and losses may not net as well as your approach.

In part my reasoning, which may be faulty, is that current market conditions seem to be very erratic and not conducive to getting on more than 2 or 3 positions with lots of false starts gobbling up pips even if we have a 40% expectancy.

I would be very interested to hear more.

Best, AG
Do not dwell in the past, do not dream of the future, concentrate the mind.
Quoting AlbinaGrande
{quote} I guess that I was not clear in that I was trying to have the best of both worlds with an early small harvest to get a toe in and to help cover the costs of trading. The remaining positions are my longer term positions to capture as much of the trend as possible. Of course, this may not be a viable approach.
No problem. That's absolutely fine to trade exactly as you feel comfortable. However it was due to you posting in this specific thread and thus inferring you wanted to do something similar that made me note the differences to what you did and what I would have expected you to do (in regards to roughly how Graviton and I stack trades).

The whole point of that first trade is to gain those precious pips that we want to have to help minimise the risk of that trade...and the follow-on trade. Therefore by taking the trade off (with what seems a reasonable profit) actually severely limits the amount of risk it actually helps to cover. If you were trading with an assumed -50 pip SL, then that +30 pip profit you took isn't even capable of helping to offset a single trade (at full risk).

Secondly, the idea of following the trend is based on the plan that generally (loosely) the trend will continue and trade accordingly. The basic idea for managing your trades is that you only ever close off your trades if:

A) you have enough profit in your set of trades that is more than an expected and thus want to reduce the risk of losing so much potential profit (especially if you're concerned about news, overnight activity, weekend activity, etc.)
- or -
B) the market pulls back enough to get close (or below) BE on the top trade (the one with the least profit) and therefore if you believe it's a potential market reversal (depending on how you want to measure it). Therefore, you may decide to take off all your trades for that set.


If you are trading where the FIFO rules are enforced, then you would have to take off the lowest trade(s) in chronological order. If not, then you have the option of closing just the top one, the top two (so the top trade at BE is worth nothing or some amount of negative pips and the 2nd trade, which should be roughly 100+ pips)

The process is actually fairly simple. The hard part is getting used to putting on a single trade and letting it run/breathe/move...however you want to think of it. Once you have a few trades (as stacks) under your belt (following this process or something similar), and realise its a fairly reasonable, repeatable process, you really start to see the benefit of doing it. Keeping the initial trade size low (along with all the others) also means you can manage your risk, as it will be essentially 2x to 4x lower (assuming a 2x - 4x reduced trade size). So, as you seem comfortable with your 0.3 trade size, I'd suggest using 0.1 as your trade size for stacking them. 1/3 of the profit (initially), but also 1/3 of the risk.

If you're able to get the stack going, then 3 trades at something like +220, +118 and +9 pips shouldn't be seen as such rare occurrence for a set of stacked trades. Just don't expect that from the 1st, 2nd or maybe even 3rd trades (each of which may never get a chance to even get a 2nd trade put on after them). That first trade has to be in a decent trend and be held to prove itself, up to 100+ pips (or where ever you want to set your stacking level).
Quoting Nefser
{quote} No problem. That's absolutely fine to trade exactly as you feel comfortable. However it was due to you posting in this specific thread and thus inferring you wanted to do something similar that made me note the differences to what you did and what I would have expected you to do (in regards to roughly how Graviton and I stack trades). The whole point of that first trade is to gain those precious pips that we want to have to help minimise the risk of that trade...and the follow-on trade. ..... If you're able to get the stack going, then 3...
Thanks again for so much detail and the time that you have put into your responses. I will definitely give it a try.

AG
Do not dwell in the past, do not dream of the future, concentrate the mind.
Quoting AlbinaGrande
{quote} Thanks again for so much detail and the time that you have put into your responses. I will definitely give it a try. AG
You're very welcome. Always great to hear of someone willing to try something that I know can work and works quite well. I wouldn't be able to say this if I hadn't been able to do it myself.

Don't even worry about the stacking thing at first. Just get used to keeping a trade open for as long as possible (as long as there is some reasonable trend movement). No harm in letting it get to 150 or 200+ before adding another on. That just gives more opportunity for you to raise the SL on that base trade for a comfortable profit and cover any risk combined, plus some extra potential profit.
Most of the trading methods I've studied over the years don't work. I can pretty much tell right away that any system that tries to predict the future wont work over the long term. Unfortunately, that includes most of the systems one will read about on the internet. Many people can never accept that they can't predict the future and refuse to search for a trading method that can win long term without trying to predict the future. Those people are destined to lose a lot of money in the markets before they learn to trade, if they ever do. Most never will. I really only know of two trading systems that produce long term profits. One is the value system that Warren Buffett uses where he does an in depth analysis of fundamental factors to identify value in the markets. Of course, there is only one Warren Buffett. If you are him, you are very lucky to be so. The other method that is proven to work is trend following. It's not as exciting as predicting the next huge move, but it will provide consistent profits once one perfects the methods of money management and consistent execution. Even simple trend following is complex enough and can take years to perfect. Why anyone would want to try to perfect something horribly complex to predict the future, when that doesn't even seem rational is beyond me. I'm willing to share information I've found about trend following, and there are many who have had more experience at it than me. Most may not want to share their methods, but many will for only the price of a book or less. If anyone wants to learn this profitable method, I can point them to some real successful traders books where they lay everything out in the open. The Trend Following book by Michael Covel is a good place to start. You can get it used for $9.99 and that's a bargain. - G
Whatever method(s) you choose to enter the market should have a statistically proven edge. The method(s) you use to scale in should have a similarly provable edge.
What edge is there in entering the market after it has moved x amount of pips in your favour?
  • Post #273
  • Quote
  • Edited 11:27am Sep 26, 2018 10:57am | Edited 11:27am
Quoting Nivad
Whatever method(s) you choose to enter the market should have a statistically proven edge. The method(s) you use to scale in should have a similarly provable edge. What edge is there in entering the market after it has moved x amount of pips in your favour?
That's an excellent question. I'm sure it depends on the market and probably the instrument. For Forex, there should be a statistical analysis of that somewhere. If anyone knows the answer, post a link?

Oh, it would also depend on when you exit. One could exit at a predetermined r/r, by a fixed or trailing or more complex stop, right on the peak profit (if they are psychic), or after the peak profit, which is usually the best I can do.
  • Post #274
  • Quote
  • Edited 11:31am Sep 26, 2018 11:15am | Edited 11:31am
Quoting Graviton
{quote} That's an excellent question. I'm sure it depends on the market and probably the instrument. For Forex, there should be a statistical analysis of that somewhere. If anyone knows the answer, post a link?
Hi G.

I did not understand that you meant to enter slavishly at a predetermined fixed point, say 100 pips, but rather enter around that point pending a favorable market structure. Otherwise with an Entry order you could get nailed at the peak of a surge and whip lashed. Been there, done that.

In general it looks like we can expect 1 or 2 reentries per week unless we are trying to aggressively work a free-fall or rocket rise on a blow-off - but then this would not be Trend trading in the sense of your thread.

So maybe stacking needs to have both a Time and a Price dimension - ie. Space Time to nurture your Trend.

Best, AG
Do not dwell in the past, do not dream of the future, concentrate the mind.
Quoting AlbinaGrande
{quote} Hi G. I did not understand that you meant to enter slavishly at a predetermined fixed point, say 100 pips, but rather enter around that point pending a favorable market structure. Otherwise with an Entry order you could get nailed at the peak of a surge and whip lashed. Been there, done that. In general it looks like we can expect 1 or 2 reentries per week unless we are trying to aggressively work a free-fall or rocket rise on a blow-off - but then this would not be Trend trading in the sense of your thread. So maybe stacking needs to have...
Good comment. Depending on the price action, there may be a wide range of variation between the points where we want to add to good trades. For instance, the ADR of CAD/CHF is around 45 pips per day. The 10 day ADR of GPB/NZD is about 135 pips per day. That's just one factor but it's an important one. There are certainly times when a 50 pip spacing between stacked trades is too much and other times when a 100 pip spacing is too little, but the minimum to maximum range of those majors ADR's say 40 to 140 pips, is probably a good space to operate in for my system. Since I'm looking for longer trends, I'm generally looking at stacking on the larger side of the ADR's. That might seem like I'm passing up on profit opportunities, but there will always be more opportunities, and I pass up thousands of profit opportunities every day in some markets somewhere in the world. I can't place a value on each of those . My goal is to catch the fat center of larger trends, like from 300 to 500 pips with 1 to 4 trades stacked up. It seems like no matter how I try to trade, most of my trades end up at break even, with a small loss or a big loss. The best I can do is assure that I have eliminated the big losses from my trading and provide an opportunity for some big wins to overcome the many small losses.

That sort of discusses the space aspect of my trading. Of course, in theory it takes time for a trend bias to act on price. In practice the best I can do is look at it statistically. So if I'm setting up to "hunt" for a 400 pip chunk of trend, and the pair I choose, by whatever method of entry, has a 50 pip ADR, on average it should take 8 trading days to collect my pips if all 8 moves were in my direction. It might take much longer, say 16 days or more, if there are many retracements along the way that are about the same size as the up moves or the market goes into one of it's slow periods. It could be shorter than 8 days if we get some major news like a Fed announcement that quickly propels price in my direction. As long as I'm managing my risk and consistently executing my trades, I'm willing to take my profit no matter how fast or slow it comes. Of course someone could counter that there is a time value of money and if I tie up capital in a non-productive trade for a long time, I am actually losing that time value of the capital. That's true, but more so in stocks where a stock price might not move much for months. If there is one thing we know about currencies, it's that they tend to move over time. Thanks for the good question AG. - G
I think trend following works, but implementing it the traditional way is very very hard. I personally only use it to give me perspective of the overall direction of the markets. the way I manage the trade has nothing to do with trend following. it only improves the odds of my setups working. I only take the setups inline with the major trend. sometimes I will turn and take setups against the trend when I believe it has ran too far.

But I tried trend following for 2 good years, had some success but the eventual choppy market always got all the profits back. I tried every form of trend following with no success. I know from my statistics it works over the long-run, but the whipsaws are just too much to bear. Definitely only recommended for someone with lots of capital and all the patience to watch it grow.

I think today as it stands its a game for the big guys. The little guy will just get crushed before those trendy times show up. Cheers and good luck to all.
When you see it, BET big.
Quoting Rennaissance
I think trend following works, but implementing it the traditional way is very very hard. I personally only use it to give me perspective of the overall direction of the markets. the way I manage the trade has nothing to do with trend following. it only improves the odds of my setups working. I only take the setups inline with the major trend. sometimes I will turn and take setups against the trend when I believe it has ran too far. But I tried trend following for 2 good years, had some success but the eventual choppy market always got all the profits...
Thanks for the input Ren. I can't really disagree with much of what you said. Though trend following is a proven method to make significant returns, it comes with a drawback, or we should say many drawdowns. As the chart below indicates, a major stock trend following fund often considered one of the best, Dunn Capital, regularly experiences major drawdowns of 27 to 63%. This method is not for the faint of heart. Of course, with proper money management it's quite possible to weather those drawdowns and comeback to experience outsized returns. I'm not sure what fraction of your account you were risking on each trade, but any more than 1% per trade is likely to end up in disaster. I personally limit my trades to 0.5% of balance per trade maximum and where I can I use techniques discussed here to reduce risk even further for an overall average of 0.3% risk per trade. Even so I occasionally experience stomach turning whipsaws and drawdowns. I'll spend some time going forward discussing money management and risk reduction. Best success to you. - G

https://www.trendfollowing.com/wp-co...w-1024x773.jpg
Quoting Graviton
{quote} That's an excellent question. I'm sure it depends on the market and probably the instrument. For Forex, there should be a statistical analysis of that somewhere. If anyone knows the answer, post a link? Oh, it would also depend on when you exit. One could exit at a predetermined r/r, by a fixed or trailing or more complex stop, right on the peak profit (if they are psychic), or after the peak profit, which is usually the best I can do.
These are all things you should have researched through backtesting before you being to trade. If you haven't found these things out about your system and are trading then you may in fact be gambling when you think you are trading.

Let's step back for a moment. Trading is a zero sum game .Money flows from the losers to the winners' accounts.The winners in this game are the big funds and institutions who take money consistently from the retail traders. These people have billions under management and some of the brightest minds in the world along with some of the fastest and best technology available for trading.Do you think they trade by guess and enter trades based on their intuition or judgement? Would you allow a trader to enter a trade risking millions because to him/her it looks like a good area?

These people win because they have researched every piece of their trading and know how it works. If they trade systematically and win consistently do you think it wise to trade against them on judgement or intuition? Just some food for thought.
Quoting Nivad
{quote} These are all things you should have researched through backtesting before you being to trade. If you haven't found these things out about your system and are trading then you may in fact be gambling when you think you are trading. Let's step back for a moment. Trading is a zero sum game .Money flows from the losers to the winners' accounts.The winners in this game are the big funds and institutions who take money consistently from the retail traders. These people have billions under management and some of the brightest minds in the world...
No, you don't have to backtest. Forward testing is essentially what you do when you trade and you're profit is the proof that the system works. I've done it and it does. So, consider it tested. Indicators give you an idea of where you think the market might move. If you get in and get a profit, then other triggers (including basic money management) may make you get out of it, even without a specific 'market' trigger.

Sometimes less is more. Sometimes more is more. Sometimes less is a lot less.

-----
"Trading is a zero sum game" - Often touted in regards to trading, but for our purposes (trading to capture moves and pips to make money), is essentially irrelevant. It doesn't matter that it's a zero sum game, so I just don't get why this statement is thrown around all the time.

-----
"The winners in this game are the big funds and institutions who take money consistently from the retail traders. These people have billions under management and some of the brightest minds in the world along with some of the fastest and best technology available for trading.Do you think they trade by guess and enter trades based on their intuition or judgement?"

Oh yes they do trade by it (intuition and judgement)! Some would even swear by it and boast about it. There are probably as many, if not more idiots and egos in "professional" traders, including those that talk specifically about intuition, gut-feel, etc. There are plenty of Technical (and every variety and combination of tool), Fundamental (that will happily turn their 'collective assessments of the market' on a whim when the market turns against their 'predictions') traders and a whole variety that combine Technicals and Fundamentals.

Again, this doesn't matter. What they do is all part of the Forex market. Activities of those involved in the market affect the market. It's what makes it exist in the first place. Those movements are what the rest of us take advantage of, as we're all too small to make much of a difference.


-----
"These people win because they have researched every piece of their trading and know how it works."
...and again, many have not. They have not and will continue not to actually truly understand how it works and how to get an edge. We have far more capable technology than ever before, and some of the most astute, clever people working on algorithms to capture the market moves and guess what...they still fail. All the time. They also succeed. I don't know how often, but they do (and obviously well enough to keep investing in them).

However, if the tech was that good and so much better than humans, they'd have sacked all the traders (bloody expensive ones at that) and just reaped the rewards. Funny how that has never happened.

Derivatives are a great proof of people trading with things that vastly outweigh their ability to understand the underlying concepts. The same can be said even with the basic simplicity of Forex. Two currencies where you trade in regards to the small fluctuations between them. Hardly complex to understand, but still, many can't take advantage of these changes (and at times like strong news, it probably surprises many).

-----
"...fastest and best technology..." - Yes, faster technology is an edge, where you can get a trade in before others, which causes the market to move and thus provide the ability to capitalise on that movement. That's one way of trading. Again, essentially irrelevant to the rest of us.

This leads onto your posting about an 'edge', which I so dislike, but perhaps I'll comment on that another time.


Lastly, I'll just say that I'd really prefer if you take these types of theoretical system-testing discussions elsewhere.
As trend followers you have to deal with lots of small losses. Like Copernicus did today I also will cut my loser on FF.

As some final thoughts....when a casino is putting in a new game or machine do you think they just make up a fair game and put it in and 'forward test' it without knowing that it has an edge through 'backtesting' it and over the course of a large number of plays makes money for sure? There's a reason they make so much money and it's just the same with trading.

Does anybody open any successful business without doing research beforehand? That would be stupid right ?

We'll meet on the battlefield. Good trading.
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