Some trend following critics have expressed a familiar sentiment:
…the consistent volatility [and drawdown] of these systems makes it an untenable strategy, at least for me.
It’s true that trend following is untenable for those that cannot stand the feelings of being in a drawdown. For those that are ok with drawdowns, perhaps an untenable strategy is one that avoids volatility at all costs, thereby effectively avoiding large returns as well. Great trend followers have seen drawdowns come and go. They also know the kind of returns that typically follow periods of drawdown. Maybe that helps them stay on their system. It constantly amazes me that during the good times everybody wonders how these folks make so much money, and during the drawdowns everyone wonders why those guys are so stupid as to keep trading those obviously “dead” strategies.
An Excerpt from The Complete TurtleTrader on Richard Dennis’s Thoughts on Volatility
When Dennis was a guest on a radio show in 1984, a caller assured him that if he traded long enough, he would give it all back.
The full excerpt, including how Dennis answered his critics, is on the Richard Dennis page.
Volatility Trading Strategies
How are volatility and risk related in an investment and just what is volatility trading? This is a system where you trade on the volatility of the underlying process, such as the value of an index, as opposed to price itself. For further information read this article on the FT Site.
More on Dennis: Richard Dennis, the teacher.
TurtleTrader is Michael Covel’s site. So is TrendFollowing.com.
That’s where you’ll find his trading systems, courses, 1,400+ podcast episodes and much more.