Barbara Saslaw Dixon, a student of Richard Donchian, offered in 1974:
Technical analysis is based on market action, or price. The theory derives from basic economics. The price of a commodity at any given time is determined by the supply, the demand, the general economic outlook, the weather, the political climate, the optimism or the pessimism of the population, and other factors. The technician looks only at the price, since by itself it represents one side of the equation and thus encompasses all other inputs. The technician mentally substitutes the words buy for demand and sell for supply. Thus, when corn increases in price, the technician says that buying — demand — is increasing and that the price is going up. The trend follower makes no attempt to forecast the extent of a price move. His basic tenet is that once a trend begins, it has a tendency to persist in the same direction for some time. He devises precise rules to determine what, to his mind, constitutes a trend and identifies the situation when a trend has finished or reversed. He then further disciplines his thoughts into a strict set of conditions for entering and exiting the market. He acts on these rules to the exclusion of all other market factors. In so doing, a trend follower removes, hopefully, emotional judgmental influences from his individual market decisions.
On Good Systems
“A good system is one that will keep you alive, keep your equity intact when there are no trends. The raison d’etre of any system is to insure that you are in the market when a trend establishes itself. The message is, don’t give up trend following, even after a string of losses. That’s just when the profits are due.”
— Barbara Saslaw Dixon
On Prediction
“The successful trend follower doesn’t attempt to predict price moves, nor does he expect to be right every time. He hops on board according to his signal once a trend has begun, and he lets his profits run. He makes no attempt to forecast the top or bottom of a price move. He hopes, of course, that it will continue indefinitely. He expects to make money over the long run, but on individual trades he admits when he’s wrong and accepts many a [small] loss.”
— Barbara Saslaw Dixon
TurtleTrader comment: Her wisdom is as fresh today in 2002 as it was in 1974.
On System Design
“When designing a system, I believe it’s important to construct a set of rules which fit more like a mitten than like a glove. On the one hand, markets move in trends, but on the other hand, past results are not necessarily indicative of future performance. If you design a set of rules which fit the curve of your test data too perfectly, you run an enormous risk that it will fizzle under different future conditions.”
— Barbara Saslaw Dixon
On Curve Fitting
“Contemporary databases, software, and hardware allow system developers to test thousands of ideas almost instantaneously. I caution these people about the perils of curve fitting. I urge them to remember that one of their primary goals is to achieve discipline which will enable them to earn profits. With so many great tools it’s easy to change or modify a system and to develop indicators rather than rules, but is it always wise? I suggest they plan their research and conduct their studies in a systematic fashion. I remind them that systems and trading involve compromise — perfection is not achievable. Finally, I suggest they move slowly, that they look at trades on charts and not simply study printouts of hypothetical profits and losses.”
— Barbara Saslaw Dixon
How to Handle Unexpected Events?
Barbara Dixon’s views on the unexpected:
Q. How is your systematic approach able to deal with unprecedented political and/or economic changes?
A. The historical data that systems traders use to construct and test their trading rules contain then-unprecedented political and economic events which impacted prices. In general, the data lack labels such as “January 31, 1990: Start of Gulf War” or “September 16, 1992: Collapse of EMS.” The point of systems trading is that the impact of such events is always reflected in the price (whatever the market) and that systems traders need not struggle to react when such events actually occur; they simply follow their rules.
Why Dixon’s 1974 Observations Are Still Definitive
The four sections above were written 50 years ago. Every principle they articulate is as structurally correct today as it was in 1974. The mitten-versus-glove metaphor for system robustness is still the most useful single image for explaining why loose parameter fits outperform tight ones. The “profits are due after a string of losses” observation about staying with the system is still the most direct statement of why discipline through drawdowns is the prerequisite for capturing trend following returns. The unexpected events answer is still the most concise explanation of why trend following handles crises automatically: the events show up in the price.
Dixon is one of Richard Donchian’s students. Donchian, who developed the Donchian Channel breakout system and the weekly rule, is the direct ancestor of the Turtle system. The Turtles used breakout rules derived from the same conceptual framework that Donchian taught in the 1960s and 1970s. Dixon’s articulation of that framework in 1974 is the clearest statement of what Donchian’s students understood that has reached public record.
The TurtleTrader comment that her wisdom is “as fresh today in 2002 as it was in 1974” applies equally in 2024. The markets have changed in their microstructure, their accessibility, and their geographic scope. Human psychology has not changed. The tendency of prices to trend has not changed. The danger of curve fitting has not changed. The raison d’etre of a good system has not changed. Dixon understood all of this in 1974 because Donchian understood it before her.
Frequently Asked Questions
Who was Barbara Saslaw Dixon and what is her connection to Donchian?
Barbara Saslaw Dixon was a commodity trader and market educator who studied under Richard Donchian, widely considered the father of trend following and the developer of the Donchian Channel breakout system. Her 1974 writings represent one of the earliest clear articulations of systematic trend following principles and demonstrate that the approach’s theoretical foundation was well-established decades before the Turtle experiment popularized it.
What is the mitten-versus-glove analogy for system design?
Dixon’s analogy captures the curve fitting problem. A glove fits one specific hand perfectly. A mitten fits a range of hands adequately. A trading system designed like a glove produces extraordinary results on its test data and poor results on new data because it was fitted to the specific characteristics of the historical sample. A system designed like a mitten uses rules loose enough to work across a range of market conditions, producing robust live performance at the cost of some historical fit precision.
How does a systematic approach handle unprecedented events according to Dixon?
By not needing to handle them explicitly. Historical price data already contains the price impact of every unprecedented event that occurred during the test period: wars, currency crises, political collapses, pandemics, technological disruptions. The system was calibrated on data that includes those events without knowing what they were. When new unprecedented events occur, their impact is immediately reflected in prices, which is the only input the system uses. The system follows the rules. The rules respond to price. The unprecedented event produced price movement. The response is automatic.
Want to learn more and start trading trend following systems?
Start here