You may have heard of the maxim “the trend is your friend until the end when it bends”. Actually, there is a unique group of traders that subscribe to this concept of trend following. In the fund industry, Commodities Trading Advisors (CTA) are known to be trend followers that trade a myriad of asset classes ranging from commodities, futures, bonds and currencies.
One of the most successful trend following CTAs of all time would be Paul Tudor Jones, founder of Tudor Invesment Corporation. One of his major successes was predicting Black Monday in 1987 where he made a windfall by short selling the market. However, he did not achieve this alone. It was his business partner, Peter Borish that identified a similar market behavior to that of 1929, before the great depression.
Unlike typical fund managers, CTAs put little emphasis (or none at all) towards the underlying fundamentals of an asset. Instead, they focus on using quantitative models to analyse the behavior of price to make buy and sell decisions. Interestingly enough, the managed futures industry, where CTAs work in, has shown superior returns compared to its counterparts.
We will not go into the details managed futures as a business. This purpose of this article is to expose you to the world of trend following and how it is possible for an average Joe to learn trend following. Richard Dennis, a famous commodities trader once did an experiment by training a group of 21 average men and women (which he called “turtles) for 2-weeks using his trend following system. Were they profitable by the end of it? I suggest you read the book “The Complete Turtle Trader” to find the answer.
Trend following is just one of the many strategies used in the market. It is known to have a lower hit rate but a way larger payoff compared to other trading styles out there. Read all the free resources available and find out if trend following is for you!
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Till next week, have a good weekend!