TREND TRADING TO WIN

[mathjak107]

im very sceptical of any trading system and i dont believe anyone except the people promoting it make money but i have to admit all those infomercials about trend trading to win look enticing...im curious if anyone actually tried one of these software based trading systems...

 

[obryanjf]

Of course you only hear the great successes and for just a snapshot in time, if they are really not just actors.

Sounds good, but I'm skipping the deal.

job

 

[2B]

I read a report several years ago about mutual fund marketing. There's lots of money to be made with a "hot fund." So, the mutual fund companies start a large number of funds and put enough money in them so they are just large enough to qualify for recording the performance data. They then run them aggessively but with different holdings. The losers go away and the winners eventually get "discovered" as the No 1 fund for whatever asset class they claim. Many millions of dollars rush into the fund and all of the management fees more than cover the cost of their losers.

It comes down to flipping coins. Put enough people in a room and eventually someone will flip heads 10 times in a row. That person is a genius! Let him/her manage your money.

 

[NinjaPigeon]

I'm not sure what "trend trading" is, really, but I'm curious if following the people promoting such things works. Like, I've heard people will buy things the Fools recommend knowing that less savvy investors will do the same. They hold it for a day or so, then sell. Not huge profits, but a way to take advantage of the sheep, perhaps. I'm assuming people do the same with Kirk and Cramer.

Anyone doing this, even if only for the quick 5% boosts they sometimes generate? In A Random Walk down Wallstreet, in the chapter about chartists, they allude to the self-fulfilling nature of such things. People believe the stocks will go up, so they all throw their money into it, making it go up. Eventually, of course, they wisen up and the stock corrects itself. But could work in the short term, perhaps?

 

[2B]

I know when to totally tune out an invest advisor or commentator.  What any form of technical analysis is mentioned I know they aren't worth listening to.  I know.  I used to be one.  Eventually, I figured out a diversified portfolio beat the crap out of what I did but I lost the "rush."

BTW, I am pretty sure "trend trading" is nothing more than watching for what's moving up or down sharply and then trading with the market.  It's a variation of the "greater fool" approach.  A contrarian trend trader would watch for the first sign of technical reversal and then do the opposite.  Both approaches can and do make money.  The question still comes down to timing.

Also, if someone has a technique that lets them make a fortune in the stock market, why would they need to share it with anyone?  All of these infomercial financial people are selling something that if it really worked they would have no reason or incentive to sell it.

 

[brewer12345]

There was a brief article in Kiplinger's about trend trading a year or so ago. Basically, they appear to espouse making contrarian bets on big short term moves in individual stocks. So say stock A gaps up 6% one morning on news. They go short, wait for people to realize that its an over-reaction, and cover a few percent later.

I could see how it might work, but its not my bag (baby). Too easy to blow yourself up, IMO.

 

[cute fuzzy bunny]

Yep. All these systems work great until they dont.

Most of the people I've talked to that played with "systems" never accounted for their actual aggregate gains and losses until schedule "D" time. Then after letting turbotax siphon up all the numbers, they briefly looked at the bottom line numbers with distaste to see that they'd either lost money or not beaten the market...at least not year on year for decades. Then employing good short term memory suppression, declared victory over their gains and went back to their 'system', or another one.

Stock market systems are exactly like fad diets. They give you something exciting to do for a while and might even show some good short term results, but they're ineffective long term.

Holding a widely diversified portfolio, rebalancing every now and then, and ignoring it is just as boring and effective as a reasonable diet and exercise.

 

[ESRBob]

Yep,
These things may work for awhile, but they all get frittered away, often by the very fact that lots of people find out about them and start using them, which raises prices for the candidate undervalued securities. and makes the 'deal' disappear.

Fun while it lasts, but the trouble is we need systems that work for the long run. Otherwise you're just chasing your tail.

 

[Mysto]

A freind of mine went to one of those seminars about 3 years ago. He bought the software. He has been so successful that the software just sits there while he goes to work for 12 hours a day.

He had winners and he had losers but in 3 years the losers outnumbered the winners. It's gambling!

 

[wildcat]

I believe a lot of these "programs" are based on put-call parities, nothing too scientific.  I have no idea how trend trading works but trading eats away at your gains.

 

[haha]

There was a brief article in Kiplinger's about trend trading a year or so ago.  Basically, they appear to espouse making contrarian bets on big short term moves in individual stocks.  So say stock A gaps up 6% one morning on news.  They go short, wait for people to realize that its an over-reaction, and cover a few percent later.

I could see how it might work, but its not my bag (baby).  Too easy to blow yourself up, IMO.

I would expect this to have results distributed much like writing options. Many modest winners, some huge losses. This sort of system is easy to sell, because it is psychologically acceptable to people.

Ha

 

[thefed]

i dont 'trend trade' with a system, but i play the momentum. i play the news, PR's etc.

I never hold these for more than a day or 2, sometimes a week. Most are held intraday only. I'm up quite a bit, hjaving started with 1500 bucks.

I was down to 170 at one point, and over 6.5k at one point. I've been taking it slower lately playing only the best of the best....I've been doing this only since last august.

But eventually, I'll end up behind...I'm sure.

 

[ESRBob]

TheFed --
Stick with buying your deep discount houses for little or no money down and then rehabbing them --my guess is it'll make your stock investing look pale in comparison.

 

[free4now]

The way I look at it each trade increases the number of ways that I can lose money.

When I got started investing I followed the Fabian system which basically meant selling when the stock falls below it's 40 week average and buying when it goes above the 40 week average. I got in because it was recommended to me by a trusted advisor and my research showed that it did seem to do as well as the market or better while lowering volatility. But what I didn't realize was that there are some situations (namely flat or heavily whipsawing markets) where it strongly underperforms. You have to execute your trades right when the indicator flips... any delay and the market movement comes out of your balance. Miss or delay one trade and you can lose big. Like I say, every trade is a new opportunity to lose money.

Eventually I realized that buy and hold worked better most of the time, and is infinitely less hassle. Also, the senior Fabian retired and the junior Fabian who took over was too cocky and changed all the rules of the system in ways that made it more into a datamined gambling plan. This is another risk if you are dependent on some outside entity for your trade signals... that outside entity might fold and leave you with positions that make no sense on their own.

I asked a lot of smart people what was wrong with the Fabian plan, and none were ever able to give me a good answer. I was in it for years before I figured out the failure modes on my own. The reason was simply that these smart people didn't know enough of the details of the system to actually know the failure modes. I would get a generic answer "market timing is bad" but when I showed them long term gains and volatility better than the market that shut them up and I never got to understand the real issues.

So don't expect the smart people on this board to be able to point out in detail the actual problems with "trend trading" or any other system they don't know. The best source for finding the problems might be to look for the smart people who tried the system and bailed. Now that you can search for "____ sucks" on google you have a chance of finding them.

 

[mathjak107]

the reason i started the post is a buddy went to a seminar for i think wise trade ..he claimed how in the simulations they let you try which are set up real time he made money in 80% of the time..you see the ad's for trend trading to win and it looks great...but i think most of us know its a suckers game....
but having no expeirince with any software like this i was curious if anyone actually did......
i dont think i would ever try it as i believe in loosing money the old fashioned way....by myself

 

[BUM]

Trend Trading? Highly recommended! BTW for a limited time, and a limited time only; I have available a number of timeshares in the beautiful Okachobee Lowlands. Construction starts soon! Our operators are standing by to take you.

 

[free4now]

..he claimed how in the simulations they let you try which are set up real time he made money in 80% of the time.

It's quite easy to set up trading systems that will make money 80% of the time, or even 90% or 99%. But doing so also increases the risk that the times you lose you will lose big and it will all go away. The few percent of people who get big losses in the simulation will either quietly walk away in shame or be convinced by the others who won big that they did something wrong and should stay on.

Just as a quick example, here is an approach for beating the house in Las Vegas that is almost guaranteed:

Bet $100 on a blackjack game. If you win, congratulations you beat the house so stop. If you lose, increase your bet to the total of your losses plus $100 and play again. Repeat until you win, and then stop.

Of course the danger is that a string of failures could make you bet all your money and not have any more available to play any more. But most people who follow the rules starting with a decent stash won't have that happen, so it looks great.

Notice that the longer you play this game, the more likely it becomes that you go bust. Also notice that the testimonials you see on TV for trading systems are always from people who made a killing on their first few trades, never from people who have continued to be successful over many years.

 

[ESRBob]

Notice that the longer you play this game, the more likely it becomes that you go bust. Also notice that the testimonials you see on TV for trading systems are always from people who made a killing on their first few trades, never from people who have continued to be successful over many years.

That is really the point --

We need systems that will work over decades, and no one is willing to hold the cellphone to their ear to trade a sell signal for the rest of their life.

Just imagine you did try Trend Trading to Win for the next 18 months and made a million bucks with it. Then what are you going to do? Play again? OK, go for another 3 years, and keep defying the odds (starting to wonder a bit about this?) and rack up another 3 million. Then what are you going to do? Keep doing it? Or switch to something lower-maintenance.

I think most people see that, eventually, even if they can defy the odds on one of these active systems, that they need a system they can put on autopilot and have it work for them reasonably well without constant intervention, research, decision-making.

If that is what you are going to end up needing, why not just go ahead and do it now? If you need more $, then my experience has been it is best to just keep working a few more years. I've tried all the active stuff and wish I'd discovered the Bernstein/Swedroe/Armstrong/Merriman-style, low-fee buy-and-hold/ index/asset allocation with annual re-balancing approach long ago.

 

[2B]

We need systems that will work over decades, and no one is willing to hold the cellphone to their ear to trade a sell signal for the rest of their life. 

That's just it.  If it did work people would sit around with a cell phone to their ear for the rest of their lives.  There's no limit to greed.

If these "trading systems" did work, they would be in use all over the world with massive numbers of people generating personal fortunes.  The only people I suspect that are generating a personal fortune are the ones selling their "systems" to gullible people.

 

[haha]

Eventually I realized that buy and hold worked better most of the time, and is infinitely less hassle. <snip>
So don't expect the smart people on this board to be able to point out in detail the actual problems with "trend trading" or any other system they don't know.    The best source for finding the problems might be to look for the smart people who tried the system and bailed.  Now that you can search for "____ sucks" on google you have a chance of finding them.

I can tell you are a smart person yourself, who likes to find your own answers. So you are probably aware that buy and hold is also a trading system, unless you are only buying stocks with secure dividends sufficient to cover your current and anticipated cash needs. The problem with buy and hold is that it is an inadequately studied system. Say you are buying and holding today. Say that further, the market value of your portfolio starts down. What do you do? Well, as a buy and holder there is only one thing to do. Hold, and if you have the cash, the courage, and a wife who will put up with it, buy some more.

But it may continue going down. What do you do now?  And on, and on. So while you discovered the vulnerability of the Fabian system to be a flat or non-trending market, you have not been at this game long enough to have discovered the vulnerability of buy and hold-- which is of course a downward trending market.

Buy and hold when it is a thoughtful approach, and not just a mantra is intellectually based on regression to the mean. Without regression to the mean, you are going to be scared any time your portfolio value starts down. I do accept regression to the mean in US stock aggregates, based upon past history. But it is admittedly a short history, with very few separate trials. And the world is a dynamic, ever-changing system.

Personally, I will never have a portfolio that is not at least partially hedged, unless equities become washout cheap.

Ha

 

[2B]

Buy and hold is the "euphoria and vodka approach." When things are going great you are in euphoria. When things are tanking, the vodka blots out the losses.

I am diversified but I will (dare I admit) reduce or expand my common stock exposure based on my assessment of the world. I will say that reductions in common stock exposure is very rare. I'm usually 80%+ invested in common stocks as I am now.

I also have an ample supply of vodka.

 

[ESRBob]

This could be the time to go long Smirnoff!

 

[Cool Dood]

With buy-and-hold you can look at its results over any period of time (not just the current US markets) and see its amazing results.

Most of the time when people talk about some other "system" the results are really ugly, or they try to steer you away from looking at the results, or it applies only to some really narrow period of time like "this system had gains of 72% per year throughout the dotcom bubble!! buy it now!!!"

Show us your results with your brilliant scheme that makes buy-and-hold look like an "inadequately studied system."

 

[haha]

With buy-and-hold you can look at its results over any period of time (not just the current US markets) and see its amazing results.

Most of the time when people talk about some other "system" the results are really ugly, or they try to steer you away from looking at the results, or it applies only to some really narrow period of time like "this system had gains of 72% per year throughout the dotcom bubble!! buy it now!!!"

Show us your results with your brilliant scheme that makes buy-and-hold look like an "inadequately studied system."

No 

 

[Cool Dood]

No

Exactly