Trend Following. Ritholtz Barry

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      Mark Spitznagel, a trader focused on tails and a close associate of Nassim Taleb, would characterize Mulvaney’s returns as “lumpy” with “extreme asymmetric payoffs” – exactly how he would refer to his trading world. And whether using Spitznagel’s strategy, or Mulvaney’s go-for-the-gusto high-octane strategy, an opportunistic plan of attack knows you aim to lose battles, but win the war.

      Let me be clear, though: Mulvaney’s track record is but one example for industrious types to go reverse-engineer, to learn step by step how those volatile but overall up numbers came to be. His performance table is an initial shot across the bow to bring you into the trend following, month-to-month mindset of no benchmarks. But trend following is much more than one trend following track record alone – this strategy has performed consistently for more than a century across an untold number of traders. And the reasons to explain why markets have tended to trend more often than not include investors’ behavioral biases, market frictions, hedging demands, and never-ending market interventions launched by central banks and governments.52

      Follow the Trend to the End When It Bends

      In an increasingly uncertain and downright unfriendly world, it is extremely efficient and effective to base decision making on the single, simple, reliable truth of price. The 24/7 never-ending fundamental data barrage, such as price-earnings ratios, crop reports, and economic studies, plays right into the tendency to make trading more complicated than it need be. Yet by factoring in every possible fundamental piece of data, which is impossible, you still would not know how much and when to buy, or how much and when to sell. The truth of price always wins if the debate is grounded in reason. Price is the only fact.

      That said, even if you digest price as the key trading variable, it is not unusual for traders to focus on only one market – usually individual stocks in their home country to the exclusion of all other global opportunities. Seeking a maximum degree of comfort, many follow their one familiar market’s movements faithfully every day. They never dream of branching out into currencies or futures or coffee or gold. The idea you could know enough about Tesla and soybeans to trade them the same might be unfathomable, but think about what cotton, crude oil, Cisco, GE, the U.S. dollar, the Australian dollar, wheat, Apple, Google, and Berkshire Hathaway all have in common: price action.

      Market prices, traded prices, are the unequivocal objective data reflecting the sum total of all views. Accepting that truth allows you to compare and study prices, measuring their movements, even if you don’t know a damn thing about fundamentals. You could absolutely look at individual price histories or charts, without knowing which market is which, and trade them successfully. That is not what they teach at Harvard or Wharton, but it is the foundation of making millions as a trend following trader.

      Further, don’t try to guess how far a trend will extend. You can’t. You will never know how high or how low any market might go. Peter Borish, former second-in-command with Paul Tudor Jones, lays bare the trader’s only concern: “Price makes news, not the other way around. A market is going to go where a market is going to go.”53

      The concept of price as the paramount trading signal is too simple for Wall Street to accept. This confusion or misinformation is seen across the mainstream press where they always emphasize the wrong numbers. Bill Griffeth, of CNBC, “At some point, investing is an act of faith. If you can’t believe the numbers, annual reports, etc., what numbers can you believe?”

      He misses the point. It doesn’t matter whether you can or cannot believe an earnings statement. All of those numbers can be doctored, fixed, cooked, or faked. The traded market price can’t be fixed. It’s the only number you can believe. You can see it every day. However, this does not diminish confusion. Alan Sloan, a finance reporter, doesn’t get it: “If some of the smartest people on Wall Street can’t trust the numbers, you wonder who can trust the numbers.”

      I know Sloan is droning on about balance sheets and price-earnings ratios. You can’t trust those numbers —ever. Bad actors can always alter them. Even if you knew accurate balance sheet numbers, that info doesn’t necessarily correlate with buying and selling at the right time.

      A critical lesson from an old-pro trend trader:

      William Eckhardt, a trend follower and former partner of Richard Dennis (see my book TurtleTrader), describes how price is to live and die by: “An important feature of our approach is that we work almost exclusively with price, past and current… Price is definitely the variable traders СКАЧАТЬ