Mechanical Systems

Everyone who is trading, but not for a living, has probably asked themselves this question. When they ask us, we ask: what is a living? For one person, it is $50,000 a year, for another it is $500,000 a year. We don't know how much money you have or how much you want to make. One trader might risk more and make 100% on his money, but another might risk less and make 30% a year. Some traders may have a losing year -- it happens to the best. The real crux of the matter amounts to what is a living for you, and whether you are able to follow a system to make your goals happen. The answer ultimately depends on your self-discipline and whether you have that needed deep desire to win at all costs.

Most of us don't have the discipline to stay focused on a single goal for five, ten, or twenty years, giving up everything to bring it off, but that's what's necessary to become an Olympic champion, a world class surgeon, or a Kirov ballerina. Even then, of course, it may be all in vain. You may make a single mistake that wipes out all the work. It may ruin the sweet, lovable self you were at seventeen. That old adage is true: You can do anything in life, you just can't do everything. That's what Bacon meant when said a wife and children were hostages to fortune. If you put them first, you probably won't run the three-and-a-half-minute-mile, make your first $10 million, write the great American novel, or go around the world on a motorcycle. Such goals take complete dedication.
Jim Rogers
Investment Biker

How Much Time is Needed? Not much if you follow a Trend Following system. Trading signals can be generated manually via a simple PC spreadsheet in a few minutes per day. Just keep careful records and a trading log. You can also automate trading signals with products as discussed here.

Orders can be placed before the market opens and do not need hourly monitoring. Most top traders don't spend all day trading. If the markets are not moving there is nothing to do! What do they do? They manage their trades in 10 to 60 minutes per day. Richard Donchian offered the wisdom decades ago:

If you trade on a definite trend following loss limiting-method, you can [trade] without taking a great deal of time from your regular business day. Since action is taken only when certain evidence is registered, you can spend a minute or two per [market] in the evening checking up on whether action-taking evidence is apparent, and then in one telephone call in the morning place or change any orders in accord with what is indicated. [Furthermore] a definite method, which at all times includes precise criteria for closing out one's losing trades promptly, avoids...emotionally unnerving indecision.
Richard Donchian

Tim Arnold's Trading Blox software is one of the few software trading packages that traders actually use to accurately test technical trading concepts. While not as well known as many more popular packages, Trading Blox has a dedicated and loyal following. If you can imagine a trading idea, there is a good chance you will be able to "write" it into Trading Blox and backtest your idea. For more information see: www.tradingblox.com.

NOTE: If you want to learn trend following techniques and systems through advanced home study and or seminars for all traders click here. If you want to learn about trend following trading in general there is one definitive text the bestselling classic "Trend Following: Learn to Make Millions in Up or Down Markets" by Michael Covel. If you want to learn about the most famous group of trained trend following traders, the Turtles and their teacher Richard Dennis, "The Complete TurtleTrader" by Michael Covel is the only complete biography (with all of the Turtle rules) available. If you have any questions you can reach us immediately via phone or email.

This excerpt is from Chuck LeBeau. Chuck happens to be one of the pioneers in the field of trading systems. His wisdom should be absorbed by all:

[This] happens to be a true story, ...

There's something very reductive about the stock market. You can be right for the wrong reasons or wrong for the right reasons, but to the market, you're just plain right or wrong.

John Allen Paulos

Are you comfortable with the concept of right and wrong? The price you analyze everyday is the truth. Price does not lie. The price is always right.

Taking price a step further we can see...

Markets are also the same because of price. All markets are most directly measured by their individual price movements. What do cotton, crude oil, Cisco, SUN, GE, US Dollar, Australian Dollar, soybeans, wheat, Microsoft, JDS Uniphase, EMC and Oracle all have in common? Let's say you know nothing about trading cotton. Moreover, you also know nothing about fiber optic networking (a specialty of JDS Uniphase). Oracle and databases? Let's say you are clueless about them as well. Does it matter that the fundamentals of cotton, JDSU and ORCL are all different? What if you just analyze their market prices?

Trend Following does not require an understanding of the market fundamentals. Take the price data and apply your rules. If your trading is pure trend following, all markets are the same in terms of price analysis.

The Universal Chart

William F. Sharpe
Reprinted from The Financial Analysts' Journal Vol. 32, No. 4, July/August 1976. p. 4, Copyright 1976, Association for Investment Management and Research, Charlottesville, VA
Some years ago, in a land ...

When most people first start trading they often start small. As they get better at it, they trade more. They might start with one contract and then move to ten contracts. As time progresses, they reach a certain comfort level with their trading, but are still afraid to take risks beyond that ...

Consider the following table:

Loss of capital (%)

Gain to recover (%)

5
...

Trend Followers know the trick of letting their profits run is key to trading. Once you learn that to maximize your profits you must be willing to give up some part of your accumulated profits, you are on your way to sustained success. For example, let's say you start with $50,000. The market takes off and your account swells to $80,000. Many people might quickly pull their $30,000 profit off the table. They feel that if they don't take those profits immediately, they will disappear. Refusing to give up a part of that accumulated income due to fear is their big mistake.

Trend Followers understand the nature of the market. They realize that a $50,000 account may go to $80,000, back to $55,000, back up to $90,000, and from there, perhaps, all the way up to $200,000. See the mistake of quickly taking a profit just because you might not like volatility? Those people who took profits at $80,000 were not around to take the ride up to a $200,000 account. Pretend you are one of those people with the $30,000 gain in your account. Instead of simply protecting your entire $30,000 profit, why not be more aggressive with it? Do you think great traders have been successful by taking profits? Or have they compounded their profits?

Letting profits run is tough psychologically. It's counter-intuitive for most people. It feels risky. But, once you understand that in trying to protect every penny of your profit, you actually prevent yourself from making a bigger profit, you have learned an important reason why Trend Followers are so successful.

Money Management

Quick! Volatility is changing. What move do you make?

What direction do you take now?

Trend Following traders use a philosophy of trading that adapts to different markets and ...

Jim DiMaria learned an important trading principle in the less lucrative arena of baseball statistics: The players who score the most runs are home run hitters, not those with consistent batting records. It's the same with trading, DiMaria ...