A Credit Suisse First Boston employee wrote us to inquire about trend following. Our discussion follows:

CSFB Employee: We just went to a 30-day holding period here for everything ex. [stocks], futures and index trades, and I am weighing whether or not I can make use of Trend Following with those impediments. Any thoughts you have in this area would be helpful.

TurtleTrader: If you have an artificial holding period of 30 days…you are in trouble. Not much more to say. Why would something like that ever be developed?

CSFB Employee: Thanks for the honest response. Here is the official reasoning:

The purpose of the holding periods is to help avoid any appearance of impropriety with respect to employee personal trading and to prevent personal trading from interfering with an employee’s job performance. Exceptions to the holding period noted below will be authorized only when a significant loss (approximately 30%) has occurred and written approval of the trade for this reason has been obtained from the employee’s supervisor and LCD Control Room prior to executing the trade. Hedging transactions, with options that expire prior to the holding period required for the underlying security, are prohibited.

CSFB Employee: The timing is awful, as I have read everything on your site, and feel that the message and ideology makes perfect sense. As my group (I am a PCS broker on a 4-man team) has clients that may benefit from these strategies, I will probably still order the course, but it is disappointing to think I will not be the main beneficiary.

TurtleTrader: [To clarify] you have to hold for 30 days minimum?

CSFB Employee: Yes, all stocks, options, and bond trades in our personal accounts must be held 30 days, unless you take a 30% draw down beating in the interim, at which time you can apply to get out of the trade early…

People wonder how trend following can continue to work. The above interchange is yet another reason why it still works.

To trade properly you must be able to freely enter and freely exit according to rules. CSFB has created internal rules that force their people to not take action they would otherwise take (i.e. no stop exit unless you lose 30% minimum!). Here you have a major bank with very smart people creating very dumb rules. This only helps trend followers engaged in a zero sum game.

What This Conversation Reveals

The CSFB policy is not unusual. Versions of it exist at most major financial institutions. The stated rationale is compliance and conflict-of-interest prevention. The practical effect is that employees at some of the most resource-rich trading organizations in the world are prohibited from applying basic sound trading principles to their own accounts. They cannot cut a losing position. They must hold it for 30 days unless it falls 30%, at which point they may apply for permission to exit. That is not risk management. That is a guaranteed recipe for large losses on losing positions and the elimination of any systematic approach that depends on timely exit signals.

For a trend follower, this policy is unintelligible. The entire architecture of a systematic approach depends on the freedom to exit when the rules say to exit. A stop loss that requires written approval from a supervisor and a compliance control room is not a stop loss. It is a formality that arrives after the damage is done. The rules that define entries and exits are the system. Remove the ability to act on exits and the system ceases to exist.

This is not a criticism of the compliance rationale. Preventing conflicts of interest between an employee’s personal trading and their professional responsibilities is a legitimate concern. But the mechanism chosen, a blanket 30-day holding period with a 30% loss threshold for early exit, solves one problem by creating a worse one. It guarantees that employees with personal accounts cannot manage risk properly, which means their personal trading outcomes will be systematically worse than they would be under a rational approach. A major bank with very smart people creating very dumb rules. The observation stands.

Why This Helps Trend Followers

Markets are zero-sum. For every winner there is a loser. The CSFB example illustrates one of the structural sources of that losing. Institutional constraints, compliance rules, holding period requirements, and the organizational friction of getting approvals before exiting a position all prevent informed, rational participants from acting on what their analysis tells them. That inaction, forced by policy rather than by bad judgment, creates the opportunity that systematic, unconstrained traders capture.

Trend followers operating independently, without institutional constraints on when they can enter and exit, are playing a fundamentally different game than an employee required to hold positions for 30 days and absorb 30% losses before being allowed to cut them. The playing field is not level. It is slanted in favor of anyone with the freedom to follow a system and the discipline to execute it. The CSFB employee’s frustration is real. The insight that it reveals about why trend following continues to work is equally real. Every time a major institution creates a policy that prevents its employees from trading rationally, it creates an opportunity on the other side of those trades for those who can. For more on why the edge in trend following is structural and durable, see the TurtleTrader story and the broader trend following framework.

Frequently Asked Questions

Why did CSFB implement a 30-day holding period?

The stated purpose was to avoid any appearance of impropriety with respect to employee personal trading and to prevent personal trading from interfering with job performance. The practical effect was to prohibit employees from cutting losing positions unless they had already lost approximately 30% and obtained written supervisor and compliance approval to exit.

Why is a 30-day holding period incompatible with trend following?

Because trend following depends entirely on the freedom to exit when the rules say to exit. Stop losses, the core risk management tool of any systematic approach, require timely execution when predefined levels are hit. A holding period that prevents exit except after a 30% loss effectively eliminates stop losses, guarantees that losing positions grow far beyond acceptable limits, and makes systematic trading impossible.

How does institutional rule-making help trend followers?

By creating constrained counterparties. When institutional employees are prevented by policy from acting on rational exit signals, they hold losing positions longer than they should. Those losses accumulate on one side of a trade that a free, systematic trader has already exited or is positioned on the other side of. Every institutionally forced bad decision creates an opportunity for an unconstrained systematic trader.

What does “freely enter and freely exit according to rules” mean?

It means the only constraints on trading decisions should be the system’s own rules, not external administrative requirements. Entry happens when the signal is generated. Exit happens when the stop is hit or the exit rule is triggered. No approval process, no holding period, no supervisor sign-off. The system decides and the trader executes immediately. Any barrier between the signal and the execution degrades the system’s ability to manage risk.

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