Quick trend following questions:
Q. Are trading decisions made during the day?
A. No. If/then contingencies are determined the day before.
Q. Estimate the number of winning trades to losing trades?
Q. Can leverage be adjusted within trend following?
Q. Risk is always calculated prior to entering a position?
Q. Are stops used in trend following?
Q. Are trailing stops used in trend following?
Q. Does trend following make changes when economic reports are released?
Q. Does trend following adjust to changes in volatility?
A. Yes. Automatically.
Q. Does trend following use profit targets for exits?
A. No. Never.
Q. How does trend following handle big trends in your direction?
A. Trend following lets profit run until the system dictates otherwise.
Trend Following Truths
Truth #1: No one knows where a market will go.
Explanation: No one can predict market direction. Period. No one knows how high or how low a market will go.
Truth #2: No one knows when a market will move.
Explanation: No one can forecast market timing. Period.
Truth #3: Do not fight a market.
Explanation: Trend Following buys high and sells low. This is counter-intuitive. Most people think it is simple common sense to buy low and sell high. This never works. Using common sense is neither a good way to judge nor trade markets. If you buy high and sell low, you?re going with the market instead of fighting it. Become emotionally detached from trading, and you?ll do better.
Truth #4: Let a market price dictate what to do.
Explanation: Again, don?t get involved. If trend following dictates a buy signal as the market rises, you take it. Do not second-guess the signal by looking for a cheap buy. You will only lose money trying to find bargains.
Truth #5: Losses are a cost of doing business.
Explanation: No one can be right all the time. No one can make money all the time. You must expect and cope with losses. The key is to have more profit than loss in the long run. Understand that trend following anticipates and accepts small losses as a function of playing the game. However, trend following manages your small losses to keep you in the game which is all that counts.
Truth #6: Let the system determine profits.
Explanation: You can not predict or force profits. Traders who are able to back away from their controlling instincts and let a non-judgmental trend following system guide them, can take advantage of unforeseen market moves to make money.
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