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Is Trend Really Your Friend?
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Is Trend Really Your Friend?

  #1 (permalink)
Market Wizard
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Is Trend Really Your Friend?

Not if the markets are trending only 20-30 percent of the time. For day trading, one might do heck of lot better for his time and effort to learn trading non-trending periods of markets at 70-80 percent of the time.

Thinking of most day traders frequently getting whipsawed in trending markets, the trend could be their worst enemy. But of course, that is not what the non-trading gurus would pontificate.


Last edited by aligator; August 6th, 2013 at 02:57 PM.
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The trend is my friend at the end

Psychology > Strategy ≥ Money
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In my opinion the trend is not your friend.

I have to let multiple tick charts and time based charts decipher what the trend is and which way to trade.

I use 233,510,987,1597,2584,4181 tick charts along with 5, 15, 240 min. and a daily chart. A 14 period CCI with a 13 period EMA with the imput series set on Heiken Ashi seems to keep me out of trouble. It shows me when the instrument is overbought or oversold and it doesnt always line up with the trend.

Sorry to be so long winded about it.

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Massive l View Post
The trend is my friend at the end

The operative words were for "Day Trading." not investment or swing trading (Although trend may no longer be relevant at all in these modern markets).

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aligator View Post
Not if the markets are trending only 20-30 percent of the time. For day trading, one might do heck of lot better for his time and effort to learn trading non-trending periods of markets at 70-80 percent of the time.

Thinking of most day traders frequently getting whipsawed in trending markets, the trend could be their worst enemy. But of course, that is not what the non-trading gurus would pontificate.

Is it the trend or the stops frequently getting whipsawed that are not the "friend?"

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aligator View Post
The operative words were for "Day Trading." not investment or swing trading (Although trend may no longer be relevant at all in these modern markets).

We use the term "swing" to describe trading from a few weeks to months to years.
However, swing entries are typically near peaks and valleys. The same rotations and ebb and flow on a 5 minute chart
are happening on a daily chart. The same "swing" strategy used on a higher time frame can also be implemented in the
exact same fashion on a smaller time frame. 1 minute has a "trend" the same way a D1 has a "trend".
The former of course, is simply smaller, and the rotations play out much quicker.

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My journal references this trade.

Psychology > Strategy ≥ Money

Last edited by Massive l; August 6th, 2013 at 03:18 PM.
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aligator View Post
The operative words were for "Day Trading." not investment or swing trading (Although trend may no longer be relevant at all in these modern markets).

If the day is a trend-day then the trend is certainly you're friend. If the day is range day, its a moot point really, because , there isn't a trend. You trade the respective types of days differently.

That being said there are those who have a pathological aversion to trends, i.e., Victor Niederhoffer, those who laud the virtues of trend following, i.e., Michael Covel, and those who put their money where their mouth is and actually back up their claims via actual trading results, i.e., William Eckhardt.

Vic will go as far as to say that there is no empirical proof that trends exist, that is; there is not a positive serial correlation between prices. But if we look at trends as simply the sequential processing of asymmetric information, we can see how "trends" might be created.

In order to move a price, the market requires new information. And this new information takes time to disseminate among market participants. And during this period of dissemination and acceptance of a new perception, prices will appear to trend. If you are the first person to acquire and understand this new information, you are said to be forward looking. If you are the second or third person to realize that there is new information, you are called a trend follower. And if you instinctively fade this perception as it disseminates through the market, you are called a contrarian. Strictly speaking, a true contrarian, like a stopped clock, is right twice a day. And while this new information is disseminating through the market, there are obviously many opportunities to profit.

Ultimately, however, a trend-follower is economically equivalent to a person who buys synthetic options or volatility. And a mean-revision trader is economically equivalent to a person who sells synthetic options or volatility. Transaction costs notwithstanding, unless one has superior information, there is no a priori reason to believe that selling synthetic options should, over a career, be more profitable than buying synthetic options. However, the equity profile of an options seller is that of many small profits and a few big losses. Whereas the equity profile of an options buyer is that of many small losses with a few big gains.

Por ejemplo:

Been short the ES all day, although I have a long bond position against it. For now at least the trend-is-my -friend.
If today was a range day instead of a " momentum " down day, I would be trading it much differently.

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Last edited by tigertrader; August 6th, 2013 at 03:35 PM.
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Your rules are your friends, trust me! Nothing else is your friend.

You need a proof? If the trend is your friend then try to enter in the end of the trend and see what happens.

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tigertrader View Post
Ultimately, however, a trend-follower is economically equivalent to a person who buys synthetic options or volatility. And a mean-revision trader is economically equivalent to a person who sells synthetic options or volatility. Transaction costs notwithstanding, unless one has superior information, there is no a priori reason to believe that selling synthetic options should, over a career, be more profitable than buying synthetic options. However, the equity profile of an options seller is that of many small profits and a few big losses. Whereas the equity profile of an options buyer is that of many small losses with a few big gains.


I thought I was the only one that realized this :P

One interesting thing though, to keep in mind, is that some of the greatest option traders used to have the following trading profile:

1) Short near-term options <- lots of small winners
2) Long long-dated options <- some home-runs

It would be interesting to see how one could replicate this as a day-trader.... Maybe trading the mean-reversion on a bigger time-frame trend-following position?

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