Is the trend really your friend?

From the archives.

If you are the least bit familiar with my work, you know I hate these phrases. “The trend is your friend”, is probably one of the most commonly used of all of these phrases. It seems very logical, a good story and easy sell. Plus it rhymes so it must work, right? I don’t want to put words into anyone’s mouth but I believe they are saying if you just do what everyone else is doing you will make money. The same logic is why 90% of people think they have above average intelligence. Someone is the idiot in the trend, if you do not know who it is, it is you.

The more appropriate phrase should be: “The trend was your friend, back in the day.”

The “trend” is most profitable and riskiest for the ones that start it. In return, the market offers the trend starters, in an almost sacrificial way, the suckers (the last people in). This enables the trend starters to get out comfortably and/or gives them some cushion to let the trade develop more. Once you or your friend or TV or a newspaper recognize it is a trend, the risk/reward profile changes dramatically. This recognition changes the profile from being high risk and high reward and develops into high risk and low reward (trend ends)  or low risk and high reward “(trend recharged).

We would really appreciate your feedback, if you like, hate, or think we are full of crap. Please leave a comment, a voice mail (312) 725-9121, email info @ traderhabits (dot) com or twitterstocktwitsyoutube and facebookSubscribe to Traderhabits by email or to newsletter.

  • Frank Case

    We enjoy—-and agree with—-99.99% of your blogs but have a minor problem with this post.
    Since we are presently sitting on the sidelines with reference to the world’s equity markets with too much time on our hands, we are hereby adding our two cents worth to your thougths on “trends.” 

    The best definition of a “trend” that we try to always keep in mind is that a trend “is the general
    course or prevailing tendency.”

    For us “prevailing tendency” translates into “the path of least resistance.”
    Trading along the path of least resistance provides the best odds for profits.

    If this means “going along with the crowd” at times then so be it. All one needs to do
    is to be a little bit ahead of the crowd—-when a downtrend turns to an uptrend
    and vice versa—-to beat the “buy and hold” believers. 

    We strongly believe that the “observation of the price action of any financial instrument
    over different time frames” is the most important factor in profitable trading.

    The problems that investors might have—-if they subscribe to our concept—-are:

         (1)  What time frame should be used when determining the prevailing tendency?
                
                 Example: A stock has been dropping for months.  You would like to
                                     own the stock but it keeps dropping.  If it makes a new DAILY high
                                     will you buy?  If it makes a new WEEKLY high will you buy?
                                     If it makes a new MONTHLY high will you buy?  What will it take?

                                     You say to yourself:  “I’m not going to buy this stock until it starts
                                     going up in some manner.”  A new daily high would not signal any
                                     real strength BUT a new monthly (or quarterly) high would give
                                     stronger evidence of a possible change in the “prevailing tendency.”

                                     What is the best time frame?  Should it be 8 days, 3 weeks, 2 months….?
                                     Obviously there is no one correct answer to this question.  Only
                                     extensive backtesting will determine acceptable possibilities.

         (2)  Which time frames—-and how many—–should be used?

                  We suggest using three (3) time frames—–maximum.  There should be a significant
                  balanced-contrast in the time-length of the monitors used.

                  Examples:  Using  1,2 and 19 day time frames would not give as good a picture as
                                         employing 1,5 and 9 day time frames.

                                          Using 2, 7 and 12 week time frames would be better than monitoring
                                          2,3 and 28 week time frames.

    This is our take on the matter.  We may be “full of crap”—-
    but the above philosopy works for us.

    Keep up the great work on your blog.

    Frank @ http://www.alacrityconsultingassociates.com

    • Thank you for taking the time to comment. It is more about when you see the trend and how the market reacts after a critical mass.  I believe that in a market with many participants you make money by being first and getting out with the people late to the trend.  With less participants you need them to get in and out. 

  • Mark

    Interesting.  I picked up on “99% of people think they are above average intelligence”. I was wondering if they may be right….traders that is (not investors). I wonder if most traders are extremely intelligent, some even brilliant. However, they may forget that they are not in the real world when they are trading and that they are up against people of  equivalentor higher  intelect. Perhaps it’s a head in the sand thing.  It could be really uncomfortable to feel that you might be at the bottom of the range in this new (trading) world when you are at the top, in the normal world.
    Mark

    • Never really thought about it in that way.  I think simplicity almost always works.  But it is a refined simplicity.  

  • Mark

    Refined simplicity? would you expound if you have the time plse. Sounds right but can’t quite grasp the concept.
    Thanks
    Mark (again)

    • It is being simple with a purpose and reason.  It happens from trying different things and taking away those that don’t.

6 Responses to Is the trend really your friend?

  1. Frank Case says:

    We enjoy—-and agree with—-99.99% of your blogs but have a minor problem with this post.
    Since we are presently sitting on the sidelines with reference to the world’s equity markets with too much time on our hands, we are hereby adding our two cents worth to your thougths on “trends.” 

    The best definition of a “trend” that we try to always keep in mind is that a trend “is the general
    course or prevailing tendency.”

    For us “prevailing tendency” translates into “the path of least resistance.”
    Trading along the path of least resistance provides the best odds for profits.

    If this means “going along with the crowd” at times then so be it. All one needs to do
    is to be a little bit ahead of the crowd—-when a downtrend turns to an uptrend
    and vice versa—-to beat the “buy and hold” believers. 

    We strongly believe that the “observation of the price action of any financial instrument
    over different time frames” is the most important factor in profitable trading.

    The problems that investors might have—-if they subscribe to our concept—-are:

         (1)  What time frame should be used when determining the prevailing tendency?
                
                 Example: A stock has been dropping for months.  You would like to
                                     own the stock but it keeps dropping.  If it makes a new DAILY high
                                     will you buy?  If it makes a new WEEKLY high will you buy?
                                     If it makes a new MONTHLY high will you buy?  What will it take?

                                     You say to yourself:  “I’m not going to buy this stock until it starts
                                     going up in some manner.”  A new daily high would not signal any
                                     real strength BUT a new monthly (or quarterly) high would give
                                     stronger evidence of a possible change in the “prevailing tendency.”

                                     What is the best time frame?  Should it be 8 days, 3 weeks, 2 months….?
                                     Obviously there is no one correct answer to this question.  Only
                                     extensive backtesting will determine acceptable possibilities.

         (2)  Which time frames—-and how many—–should be used?

                  We suggest using three (3) time frames—–maximum.  There should be a significant
                  balanced-contrast in the time-length of the monitors used.

                  Examples:  Using  1,2 and 19 day time frames would not give as good a picture as
                                         employing 1,5 and 9 day time frames.

                                          Using 2, 7 and 12 week time frames would be better than monitoring
                                          2,3 and 28 week time frames.

    This is our take on the matter.  We may be “full of crap”—-
    but the above philosopy works for us.

    Keep up the great work on your blog.

    Frank @ http://www.alacrityconsultingassociates.com

    • Eradke says:

      Thank you for taking the time to comment. It is more about when you see the trend and how the market reacts after a critical mass.  I believe that in a market with many participants you make money by being first and getting out with the people late to the trend.  With less participants you need them to get in and out. 

  2. Mark says:

    Interesting.  I picked up on “99% of people think they are above average intelligence”. I was wondering if they may be right….traders that is (not investors). I wonder if most traders are extremely intelligent, some even brilliant. However, they may forget that they are not in the real world when they are trading and that they are up against people of  equivalentor higher  intelect. Perhaps it’s a head in the sand thing.  It could be really uncomfortable to feel that you might be at the bottom of the range in this new (trading) world when you are at the top, in the normal world.
    Mark

  3. Mark says:

    Refined simplicity? would you expound if you have the time plse. Sounds right but can’t quite grasp the concept.
    Thanks
    Mark (again)

Is the trend really your friend?

Is the trend really your friend? If you are the least bit familiar with my work, you know I hate these phrases. “The trend is your friend”, is probably one of the most commonly used of all of these phrases. It seems very logical, a good story and easy sell. Plus it rhymes so it must work, right? I don’t want to put words into anyone’s mouth but I believe they are saying if you just do what everyone else is doing you will make money. The same logic is why 90% of people think they have above average intelligence. Someone is the idiot in the trend, if you do not know who it is, it is you.

The more appropriate phrase should be: “The trend was your friend, back in the day.”

The “trend” is most profitable and riskiest for the ones that start it. In return, the market offers the trend starters, in an almost sacrificial way, the suckers (the last people in). This enables the trend starters to get out comfortably and/or gives them some cushion to let the trade develop more. Once you or your friend or TV or a newspaper recognize it is a trend, Walmart greeter, your risk/reward profile changes dramatically. This recognition changes the profile from being high risk and high reward and develops into high risk and low reward.

We would really appreciate your feedback, if you like, hate, or think we are full of crap. Please leave a comment, a voice mail (312) 725-9121, email info @ mytradingnet (dot) com or twitter or personal
Subscribe to MyTradingNetwork.com/blog by Email

The services and materials provided should not to be interpreted as investment advice, an endorsement of any security, commodity, future, or personal investment advice, or an offer to buy, sell, hold or trade futures, options or commodity interests or a recommendation to buy, sell, hold or trade futures, options or commodity interests. You assume the entire cost and risk of investing and are solely responsible for any and all gains and losses, financial, emotional, or otherwise, experienced, suffered, or incurred by you.

Read previous post:
Congress should be able to inside trade.

If you cannot get away from your hatred of congress than there really is not any point in reading further....

Close