|
PureBytes Links
Trading Reference Links
|
<<At 09:34 AM 10/13/98 -0500, Mark Brown wrote:
>What I'm trying to get across is the following : If you can determine the
>trend then its too late to do you any good. >>
I have to politely disagree. Trend following does work. The reason it works
is that the distribution of prices is not a typical bell shaped curve as would
be expected. The curve is bell shaped with thick tails. This means that once
a price starts moving in a direction there is more than random probability it
will continue in that direction. There have been many studies that show there
is serial correlation in futures prices. Believe it or not, after an uptick
the odds slightly favor another uptick over a downtick and after several
upticks another uptick is even more likely.
Now trying to trade against trends and play around in the "noise" as I like to
call it is another matter. The odds are extremely poor because it is
difficult to get a favorable risk to reward ratio working in our favor.
Losses need to be small so they are the same regardless of our approach and
nontrending markets can produce only small profits if any. Small profits plus
small losses plus transaction costs equals no advantage to the trader.
On the other hand trend following offers the potential of big profits which
can offset many small losses. Many trend followers do very nicely with far
less than 50% winning trades. Counter trend traders need to do much better
than 50% winners and that takes great skill in my opinion.
If you or anyone else can make money trading against these odds you are truely
a rare and gifted trader. I assume you are very succesful at what you do but I
wouldn't recommend this style of trading to anyone less talented. That would
be bad advice.
Chuck
http://traderclub.com/
|