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Business Week and Trend Following

Placing Bets in a Volatile World

As you read the article at the above link note the confusing use of the term futures funds. The article should be speaking of trend following traders, not futures funds. We commonly see trend following called commodity trading advisors or CTAs or commodity funds. Trend following is a style. It’s not restricted to one market in particular. Stocks, bonds, currencies (FX), meats, energy, etc. can all be traded as a trend follower.

If you believe for a minute that trend following is only futures or commodities ponder again Jerry Parker’s wisdom (excerpts from Managed Account Reports):

I think another mistake we made was defining ourselves as managed futures, where we immediately limit our universe. Is our expertise in that, or is our expertise in systematic trend following, or model development. So maybe we trend follow with Chinese porcelain. Maybe we trend follow with gold and silver, or stock futures, or whatever the client needs. It’s called managed futures because that was the profit center at the FCMs. We’re trading these great systems, and testing, and making sure what we do has worked in the past. And being disciplined, and unemotional, and applying our methods to the futures markets. But limiting our trading to this one group of markets. We need to look at the investment world globally and communicate our expertise of systematic trading. You have Big Blue beating the world chess champion, and everybody saying yeah, that makes sense, I can understand that. We’ve not been able to maximize our opportunities with systematic trading. People look at systematic and computerized trading with too much skepticism. But a day will come when people will see that systematic trend following is one of the best ways to limit risk, and create a portfolio that has some reasonable expectation of making money. We’ve got to be there and ready to take advantage of the opportunity. I think we’ve miscommunicated to our clients what our expertise really is. Systematic trading is going to be better for everyone in the long run. Our methods will work on lots of different markets. The ones that are hot today, the ones that are not hot today. We don’t want to pigeon-hole ourselves as managed futures or commodities.

Trend Following w/ Stocks

Leon Cooperman comment on stocks.

Many of our clients trend follow on stocks alone — nothing else. You can trade stocks in many ways:

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