Unlike many traders, who typically employ a passive buy and hold strategy, and only depend on rising markets for profit, trend followers use dynamic strategies designed to take long positions (in a rising market) or short positions (in a declining market), to profit from both.
Trend Follower View of World:
- Unstable world.
- World is uncertain and dynamic.
- Market players form rational beliefs but make mistakes.
- Learning takes time; slower adjustment to information happens.
- Fundamental changes are often unanticipated.
Non-Trend Follower View of World
- Stable world.
- World is knowable and static.
- Market players generally form rational expectations.
- Markets adjust quickly to new information.
- Fundamentals do not change dramatically in the short run.
Given the world market turmoil, which view makes sense to you? Which view is real?
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