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Dunn Capital and Bill Dunn: Trend Following Trader


Bill Dunn (right)

A Day in the Life at Dunn Capital

The goal of the trend follower is to take what is given. If you want to trade right you can’t say to yourself, OK, I want 15% a year. The market can’t be ordered to give you a steady 15% a year. You must expect volatility. For example, what would you rather have: three years of +15%, +15%, and +15% or three years of -5%, +50%, and +20%? At the end of three years the first investment opportunity would be worth $1520 (if starting with a $1000), the second investment would be worth $1710. See how big gains can make up for small losses? This is the world of Bill Dunn.

Dunn Capital and 95 Japanese Yen

Dunn Capital Management in 1995: + 96.7%

 
2-95
3-95
4-95
5-95
6-95
7-95
8-95
Dunn Capital
13.7
24.4
3.8
(2.6)
(3.6)
0.6
18.5

Yen Chart – Click Here

Dunn Capital [Bill Dunn] is a long term reversal trend follower that exploited the Japanese Yen to extreme levels in 1995. They made money going up that huge mountain in February of 1995 and made money going down that huge mountain in August of 1995.

Look at the monthly returns and look at the chart of the Yen. Do you see the correlation between gains/losses and ups/downs in the chart pattern? Dunn initiated the position in 1/95 and rode it until the top. He reversed the position on the downside of the first peak. The reversal was short lived as you can see by the spike back upward. Then there is the rather protracted steep downside reversal followed by Dunn.

Dunn initiated a short position in the Yen after the first peak and did not get out of the position even when it when badly against him. He stayed in the position with mounting losses. However, the losses never approached his entry position on the short side. Consequently he sat there with great discipline and waited. The 4/95-6/95 flat/loss period in his returns corresponds directly to the same flat period in the chart.

The huge downside move rewarded his patience. This example was not seat of the pants trading. There were precise rules. Dunn’s system is 100% mechanical. And by and large Dunn’s past returns are highly correlated to other trend followers.

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