April 20, 2006
Trend following - NOTHING is perfect.
Just last night I posted:
"Not many people are expecting the market to move up strongly with rising rates, and booming commodity prices. Times like this make trend following look good. I know from bitter experience, it never lasts. Too bad."
Today, some huge air was let out of the metal trend. Silver was off nearly 20 percent at one point. Not a stock, but the METAL itself. That is a serious selloff. Major. Ouch. Gold was down nearly 5 percent when I last checked. Also - MAJOR.
Today is a day that makes trend followers vomit. Trend followers, who exist mainly in the managed futures markets, often have 15-20 percent peak to trough drawdowns on their capital.
The guys that have been around the longest, have had 50 percent drawdowns. I know because I have had real capital disappear in this fashion.
Those that have not, are lying or they would be managing all the money in the world.
There is no perfect system - just those that offer better money management strategies including diversification across markets and timeframes.
Trend following is an easy and good strategy that makes money over time if you've got good money management and can stomach a 50% drawdown. Most cannot. Over time (years) trend following manged futures programs that survive out perform traditional assets. But the price for that can be very high.
Trend following is not the only successful trading stategy, only the easiest to back test, execute and understand, and is one of many strategies.
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