What is the difference between Mary Meeker and the guy below?

There is none.

Gary Boire, Vice President of Investments at Fahnestock & Co. Inc., a NYSE brokerage firm in Portsmouth, acts as Chief Tecumseh, as he casts his evil spell on the current Bear Market. As Investment Representative, Bruce MacIntyre plays a ceremonial drum, the chief chants to rid the stock market of its downswing. It is the chief’s 4th appearance over the past 28 years and he swears the superstitious tradition works in improving the market.

Some might find the comparison between Meeker and Chief Tecumseh unfair. Those people are out of touch.

The comparison is brutal precisely because it is accurate. Both approaches, the celebrity analyst issuing price targets and the ceremonial drum aimed at reversing a bear market, share the same fundamental error: the belief that human will, ritual, or opinion can change where a market is going. Neither the chant nor the target changes the price. Only buyers and sellers change the price, and they do so continuously, reflecting everything they collectively know and believe. The trend follower reads that price. Everyone else is chanting.

Why Many Traders Lose Money

• They lack discipline: It takes an accumulation of knowledge and sharp focus to trade successfully. Most traders would rather listen to the advice of others than take the time to learn a trading system. Let’s face it: Most people are lazy when it comes to trading. Although money may be the most important concern they have, and earning it, the most important goal they work towards, learning how to invest it is low on their to do list.
• They are impatient: Traders have an insatiable need for action. It may be the adrenaline rush they’re after. It may be their gambler’s mentality. It may be they feel life is passing them by, and they say, It’s now or never. Trading is never: now or never. Trading is about patience and objective decision-making.
• Traders do not trade objectively: Many traders have the habit of not cutting losses fast enough. It goes against their grain to sell. At the same time they often get out of winners too soon. It sounds simple, but it takes emotional disengagement to trade objectively.
• Traders personalize losses: Some speculators don’t have the temperament to accept small losses in a trade. They take each loss as a personal failure.
• Traders are greedy: They try to pick tops or bottoms in hopes they’ll be able to time their trades to maximize their profits.
• Traders won’t admit to reality: They are not willing to believe the only truth there is: The truth of price. As a result, they act contrary to the trend, and, deluding themselves, they lose.
• Traders buy and hold: Out of fear, they hold on to losers, anxiously watching them tank, but taking no action. When they finally sell, they are angry and embarrassed, yet they still buy and hold because they are rigid about change.
• Traders act impulsively: They often jump into a market based on a story in the morning paper. The market has already discounted the data, or it is outdated and misleading information.

Why traders lose part 1.
Why traders lose part 2.

What These Eight Reasons Have in Common

Read through that list again. Every single item on it is a behavioral failure, not an informational one. Traders do not lose because they lack access to good data or because the market is unfair. They lose because they are undisciplined, impatient, subjective, emotional, greedy, delusional, rigid, and impulsive. Those are not market problems. They are human problems.

Trend following is a direct structural solution to every item on the list. Discipline is enforced by the rules, which define exactly when to enter, exit, and size a position. Impatience is addressed by the system’s indifference to daily noise: there is nothing to do when no signal is present. Objectivity is guaranteed because the rules, not the trader’s feelings, make the decisions. Losses are not personal because the system cuts them automatically at predefined levels. Greed is contained because the system does not try to pick tops or bottoms. The truth of price is the only input. Losers are exited by rule, not held until anger forces the sale. And no morning paper story triggers a trade because only price signals trigger a trade.

The chant does not work. The analyst target does not work. The story in the morning paper does not work. Price works. It is the only truth there is in markets, and it is the only truth that trend following uses. For the specific rules that encode that truth into a complete trading system, see the TurtleTrader rules. For the story of how those rules were proven in practice, see the TurtleTrader story.

Frequently Asked Questions

What is the comparison between Mary Meeker and the ceremonial chant?

Both represent the belief that human opinion, ritual, or authority can determine where a market goes. A celebrity analyst issuing a price target and a broker performing a ceremony to reverse a bear market share the same fundamental error: they substitute opinion and wish for the only truth that matters, which is the current price and the direction it is moving. Neither changes where the market goes. Price reflects what every buyer and seller in the market believes. Everything else is noise.

Why do most traders lose money?

The eight reasons listed cover the complete picture: lack of discipline, impatience, trading subjectively, personalizing losses, greed, refusing to accept the truth of price, holding losers out of fear, and acting on news rather than price signals. Every one of these is a behavioral failure, not an informational one. Traders have access to plenty of information. What they lack is the systematic discipline to act on price rather than emotion.

How does trend following address these eight failure modes?

Structurally, by removing the trader from real-time decision-making. Rules enforce discipline. The absence of action when no signal is present enforces patience. Mechanical exits enforce objectivity and prevent personalization of losses. Position sizing rules contain greed. Price is the only input, making the truth of price unavoidable. Stop losses prevent holding losers. And news stories produce no signals because only price action triggers entries.

What does “the truth of price” mean?

It means that the current market price is the only objective measure of value available. It reflects the aggregate judgment of every participant in the market, incorporating all available information, all forecasts, and all opinions simultaneously. Any trader who acts contrary to what price is telling them, holding a falling stock because they believe it should be worth more, is substituting their opinion for that aggregate judgment. The market is rarely wrong for long. The opinion holder usually is.

Trend Following Systems
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