Trend Following is Dead?

Never kick a man when he is down. If you do then make sure you finish him. You know that I use a trend following method to trade. The last few months have been difficult and I am hardly in a mood to listen to someone telling me how I should be giving up on my "forever doomed to fail methods" and try and learn something that works for a change. That is precisely what my friend did.

"When will you realise that the days of trend following are long over? Trends are dead. Try and learn some new methods instead like Value Investing or Growth stocks." I felt elated because his belief that Trend Following was dead meant that a turnaround for Trend Following was just around the corner! He continued "I am your friend. Why don't you do a honest job like selling equities or something. I am sure we can find a good place for you, If nothing else, the new methodologies will help you make money in your trading."

This was beginning to become less fun by the minute. He had committed two heinous crimes. He had berated Trend Following and he was using job and selling equities in the same sentence! I mean I have nothing against equity sales as long as you do not call it a job! I replied sarcastically "Thanks man. You opened my eyes to better possibilities. You mean all I have to do is to learn Value and Growth methodologies to make money in the market?" The sarcasm was lost on him."Yes" he said, "Do it and over the long term you will make money" I continued in the same note "You must have used Value investing to make money in the last few months?" I was getting through to him now. "Common man" he said, "Don't be a jerk. The markets have moved down in the last few months. How can I make money then?"

"You mean the market has to move up after you buy using your Value Methodology for you to make money?" Before he could reply, I emphasised "The methodology on its own does not make money? The market has to move up?" He was now getting irritated. "Of course, it has to move up. Otherwise how can I make money?" I continued drilling home the point "You mean that the market has to TREND up after you BUY for you to make money?" He made a last ditch attempt to recover lost ground "Not trend up. Just go up." "Go up, trend up, same difference" I said. It was now his turn to mumble "I cannot understand how you cannot get the difference between trend up and go up. It is very different.

I decided to close the discussion with "Finally it boils down to this. You will make money in the market only if the market moves in your direction after you put on the trade using whatever methodology. Is it not right?" He had to agree to this statement. "If that is the case, then it does not matter so much what method you use. The result of your action is dependent on the market trending in your direction is it not? I use trend following to get into the stock. You use Value. Both make money only when the market decides to give it to us. We can only be consistent with our methodology. Is it not right?"

I must have lost a friend with that outburst because he remarked "Now I know, why you can never succeed. You can never listen to good advice. I had heard of a good job opening in sales. All you had to do was to pick up some jargon and learn about a few sectors. Now you can stew in your own trading mess!"

After losing friends like him along the way, I hope Trend Following finally revives from its death throes and I have a successful year. Then all the lost friends and more will be back!

Currently though, the market seems to be in no mood to oblige. Trends are getting shorter. I went long at 4927. But my system will require me to cut my long positions and go short below 5045 which is not very far from here!