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Trading Truths for Trend Following Traders

Have you thought about the bricks that go into the foundation of trading success?

Anyone who has had a little success investing and chalked it up to luck needs to be wary of falling into the trap of hoping Dame Fortune will look kindly on them a second time. They must consider increasing their odds of winning again by relying on a system instead of luck. Successful investing is neither easy nor obvious. But if you can find a system that gives you the critical edge in the trading process, why not take advantage of it? Luck is not a wise move.

What are some of the crucial components or building blocks of a trading system?

  • A system of comprehensive risk management including market exposure weightings, stop-loss provisions and capital commitment guidelines that preserve capital during trend-less or volatile periods.
  • A way to limited risk of each position to a predetermined % of equity.
  • A strategy for monitoring market volatility and adjusting trading size when risk and volatility exceed predetermined limits.

Richard Dennis provides some valuable words:

Anytime the market goes up a reasonable amount, say a strong day’s work, after you’ve put on a position, it’s probably worth adding to that position. I wouldn’t want to wait for a retracement. That is everyone’s favorite technique – to buy something strong that retraces. I don’t see any justification in the statistics for that. When beans are at $8.00 and go to $9.00, if the choice is to buy them at $9.00 or buy them if they retrace to $8.80, I’d rather buy them at $9.00. They may never retrace to $8.80. Statistics would show that you make more money buying them and not waiting for a retracement.

Neal Weintraub Interview Excerpt

Neal. Would it be fair to describe your trading environment as Spartan? You have no quote monitor and no television.
C.V. I would prefer the term focus. I rarely look at news. Price already reflects what comes out in the news.

Neal. In previous discussions, you talked about the book Market Wizards. Is there one particular chapter you found significant? C.V. The book was extremely interesting. The chapter on Ed Seykota I found of great interest. Seykota basically says, stick with the trend.

Tom Basso View on Net Wealth

The ability to increase one’s net worth and net wealth [is key]. The net worth of most Americans [for example] is denominated in US dollars, while their net wealth is the purchasing power of those dollars in the global marketplace. An objective for investors must be to increase both net worth and net wealth, which can be accomplished in the currency markets.

This explanation is applicable to all traders worldwide wherever they choose to live.

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