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Trading Truths for Trend Following Traders

“Successful traders have a larger edge and better money management than unsuccessful traders. Traders’ failures can be explained almost exclusively by their poor money management practices.”
Fernando Diaz

“The delicate tests that statisticians use to squeeze significance out of marginal data have no place in trading. We need blunt statistical instruments, robust techniques.”
William Eckhart

If you believe the incredible hype in ads and online you can make $1000 a day on $5,000 capital generating huge returns every month. Compound that out and you will own the world in a few years. It’s all BS.

Being Right

Losing traders forecast where the market will be tomorrow. Winning traders react to what the market is doing right now. Ask a great trader where he thinks a market will go and he will probably shrug and say the market will go wherever it wants to go. Reaction is all business, prediction is all ego (and delusion).

Indicator Hype

What are the 3 best indicators? In order they are:

1. Price
2. Price
3. Price

Most technical analysis purports to uncover hidden relationships between price and various indicators…[but] all such indicators are as random as the price behavior they attempt to predict…

If prices move up there is greater probability they will move higher rather than lower. If prices move down there is greater probability that they will move lower rather than higher. If price goes up you must buy the market long and if price goes down you must sell the market short.

[However], when [you] look at a chart [you instinctively] want to buy low and sell high. You cannot, however, buy bottoms and sell tops. You can only follow a trend which has already been established through price movement in the same direction as the position you are taking. When you buy long a market as price rises, it’s not going to feel natural and it’s not going to look reassuring on the charts. But by buying high you are probably going to be placing yourself on the minority side of the market and therefore assuring yourself of profits.

Think about the following quote from Newal T. Weintraub:

You will run out of money before a guru runs out of indicators…

Losers Average Losers

Managing your losers is the key to trading for a lifetime. Don’t add to a loser: losers average losers.

Trend Following Products

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Michael Covel Trend Following Products

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