Comments on: Book Review: Trend Following (5)

By: David Merkel

David Merkel — Tue, 05 May 2009 05:04:43 +0000

I agree that there will never be a time when everyone will be a trend follower. It was just an example to show that no strategy can permanently get bigger than its economic value.

Trend following works as a strategy. I use it in my own way and agree with it — but there are other factors that drive the market as well as trend following. As a friend of mine says, “Use the fundamentals to choose your targets, but only buy when the trend is favorable.

By: Michael Covel

Michael Covel — Sun, 03 May 2009 21:46:52 +0000

I don’t ever see a time when everyone trades like a trend follower. There are too many roadblocks and traditions coming from academia, Wall Street, and individual personal biases to see it flourish for the masses. How in the world will a majority ever be convinced that they need to take a loss to make money?! That alone stops broad adoption. People would rather pretend that they are going to make 1% a month and never get there than actually change how they operate.

By: jr

jr — Fri, 01 May 2009 13:47:02 +0000

i found you via covel.
you’ve got a good blog. keep it up.

By: tv

tv — Fri, 01 May 2009 12:03:50 +0000

profit presupposes the existence of trend

a fundamentalist intending to make money is a de facto trend follower

By: Dean

Dean — Thu, 30 Apr 2009 23:17:18 +0000

Correlation is not causation. Incentives are everything. Those are two of the main concepts Freakonomics reinforced in me. I know you find Levitt tedious and the authors didn’t need 200 odd pages to express their few underlying thoughts, but Freakonomics is an entertaining read.

As always this is a brilliant post, worth reading for this comment alone “The valid strategy that is less employed makes more money.”

I’m prejudiced against Covel, due to his self promoting ways and “virtual theft” of The Turtle’s. So I’ll probably read a SSRN article on momentum instead, e.g. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=94049

Thanks for a great blog. I must stop by more often, as every time I do it is a delight.

By: But What do I Know?

But What do I Know? — Thu, 30 Apr 2009 18:57:05 +0000

Remarkably nuanced and balanced–just like most of your writing. Unfortunately, for every person who appreciates nuance there are a hundred who just want to think “right or wrong?” That’s why blogging is such a great institution–I doubt I would have the benefit of your thoughtfulness if blogs didn’t exist.

Just to flesh out your “evolutionary” market thesis a little–in some instances, past performance would not only be non-correlated to future results, but could actually be inversely correlated, given that past strategies which have succeeded will sow the seeds of their own failure in a system which rewards rapid adaptation. It’s darn hard to sell to an investment committee, but it makes sense in evolutionary terms.

On the other hand, there are species which seem to have “learned” how to adapt to changing environments and crowded conditions. What are their analogues in the market and how can we imitate them? That I think is worth considering.

By: oops

oops — Thu, 30 Apr 2009 16:03:47 +0000

not sure if you keep up with dshort.com but he does some trend following via longer term moving averages like 12 month.
http://dshort.com/articles/SP500-monthly-moving-averages.html

today he linked a seeking alfa article:
http://seekingalpha.com/article/133972-screening-for-trends

but like you said, if you get a bunch of people following this (and by calculated risk blog linking them, it seems safe to say that is the case) it will start giving a bunch of false signals also