There is a public perception of trend following which is quite far from reality.

Forex Trend Following Strategies

In the CTA hedge fund trenches, life is far from this public view of trend following. In a series of articles, I will explain how we in the industry trade and view the markets. This first part will focus on concepts. All the details will be presented in this series. Including full trading rules. Presently I am a CTA hedge fund manager, based in Zurich.

I manage north of a quarter of a billion dollars.

How To Trade With Trends In Forex » Learn To Trade

That makes me small to medium sized in this business. My background is in quantitative finance. I construct and trade quantitative trading models for a living. I work with methodologies which can be evaluated and tested objectively. At my firm we trade systematically across all asset classes. I also wrote a book. It's called Following the Trend. Much to my surprise, the book became an international best seller in just a couple of months.

Trend following Trading System - Forex Strategies - Forex Resources - Forex Trading-free forex trading signals and FX Forecast

The book is a hard look at the reality of the Managed Futures business. The perception that the trading systems themselves are highly valuable is just one of many I explain in the book.

The public typically focus on the wrong things.

They tweak entry rules and try hundreds of permutations. This is essentially a waste of time. Entry rules is the least important part of the trend following equation.

There is a general obsession with indicators which mainly serves as a distraction. Should you use moving averages, Bollinger bands or Donchian channels? Should you use exponential moving average or simple?

A profitable trading system has to be very complicated. This is also a common misconception. Some types of strategies are complex. Trend following is not one of them. Trend following is about identifying early trends and staying with them. The points above are all common mistakes. But there is one key issue which overshadows them all. Most people trying trend following are missing the one core point which makes all the difference. Trend following on a single instrument is nuts. The hard truth is that for any given instrument, trend following fails most of the time.

You can still make money on it. Sometimes you have years in a row when a single market keeps losing money. The trends are simply not there or they keep reversing too quickly. Sometimes this happens to whole asset classes. It could be that the FX markets are not showing profitable trends for years.

The trick is to trade all of them.

One year you lose money on equities and rates but you make up for it in equities and metals. Next year you lose on metals and agriculture and make up for it on the energies. Even for trend following hedge funds with highly successful track records, most trades lose money.

This is part of the plan. When you lose, you lose small. When you win, you win big.

Trend following Forex Strategies - Forex Strategies - Forex Resources - Forex Trading-free forex trading signals and FX Forecast

Each winning trade will make up for many losing trade. Two things can happen when you enter a trend trade. Either the price moves down to your predefined, close stop.

Or it really is the start of a new trend. And then you hold onto the position for as long as possible. Until it turns against you. This is how the long term profits are created.

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Recommend Recommend Comment Share. Trend Trading Tutorial — Part One There is a public perception of trend following which is quite far from reality. Who's this Clenow guy trying to teach us about trend following?

It's a valid question of course. Always consider the source. Especially in this business. Public Perception of Trend Following The public typically focus on the wrong things. Diversification The points above are all common mistakes.

Proportionality Even for trend following hedge funds with highly successful track records, most trades lose money. In coming posts, I will explain these points in detail and prove them to you. This is very interesting.

I am looking forward to your subsequent articles. Catching the start of the trend seems key.

Great article - look forward to future installments. It may sound surprising, Haytch, but catching the start of the trend is probably the easiest part.

The trick is in the portfolio level, not in the instrument level. Most people fail at trend following because they don't understand the importance of portfolio vs instrument. Don't worry, I'll explain that concept in detail soon. I am so happy that you are posting here. I follow you on your other site Traders Place. I also read your book and I thought it was fantastic.

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