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The evolution of the giant tortoise
You know, it's true what they said. "The more things change the more they stay the same!" It was just about three years, from January 2003, I wrote my now classic "I Was Wrong" article, admitting that the monitoring of trends was not dead, after all. And in the past couple of years we have seen some good market performance trends and some pleasant, with the computer model Turtle being between 50% and 100% for 2003 and 2004, respectively. And while the current year end results not far in yet, although 2005 had a beginning is quite hard, seen as a late manifestation in many markets is going to end up giving us a profitable year.
But the truth of the matter is, if you look closely, like me, both in the Turtle system, in particular, and other trend following systems in general, there are some things that have changed slightly. A review of renewable five or ten-year periods shows some statistics smaller deteriorating since the "formal" initiation of negotiation method back in the 1980s. Total returns are slightly lower, the drawdowns are a little deeper, and recovery periods are a bit more.
There are several reasons for this, most of which can be summarized under the umbrella of the range of natural progression. On the one hand, we have good old-fashioned Darwinian "Survival of the fittest 'model.
Hey, business is basically still a great zero-sum game, where someone has to win, and someone most to lose. The winners are the most intelligent fighters, the losers from the tap and fall on the road (or even become "agents"). As in any competition, this means that eventually, will compete against other winners winners, thus increasing the bar for the entire level of the competition and make more difficult to play the whole damn to begin with. At least that's the philosophical argument of what is happening.
The technical argument is a much more short and dry, but it's basically the same story. In the "old" days, who was the first and fastest way to solve things when they were still had a huge change edge. But then came that crutch for human thought, the computer. In early 1990 everybody had one sitting at his desk, and the field was very even. Information still flowed but now ran faster, and everyone quickly became aware of it. Which meant that all traders in abroad were now able to adapt more quickly and return to their positions in line with what he had new information suddenly available.
I have spoken at great distances before about how and why the trend following works, and the fundamental reasons that trends occurred in the first place. In short, when something happens to either the supply or demand of a product (or actions), the equilibrium shifts fair market value and the price moves to a new level. In the old days, sometimes took time for the market mechanism to find this new level, but today, thanks to the speed of the computer more powerful and efficient, everything is happening much faster.
The end result, as far as we're concerned is twofold. Firstly, the trends that occur are more explosives out of the box, which means that the trader has to be faster and more agile, so jump on board and expected. Secondly, and most importantly, is the fact that these trends do not run as far, or last, as before, before all players have had the opportunity to adjust their positions, and the market (a market) returns to equilibrium.
To put it Tortuga, a good frost or heat wave or seizure of a market used to cause as coffee or soybeans or crude oil to run for months, and give us maybe a 40 N to move before the end. I remember a hot and dry summer in 1988 when it ran 40 N. Beans Also I remember the crude oil during the first Gulf War in 1991 ran for just about 40 N and benefits. Hell, even had a nice run 40 N in rates dot.com stock bubble during the mid-1990s. But in the last five years or so, I'm hard-pressed to think of any market that has tended super large.
In the 1980s, these were the types of movements that are enthusiastic, and we get one or two of them almost every year. N 20 movements were quite commonplace, and 10 N was nothing much to get excited. But since the turn of the century, I think it moves around 20-25 N bigger than I can remember seeing. I think last year in beef cattle 23 N was the biggest trend of the years and is a problem, moreover, that not too many people, even it follows that (relatively) small market.
But remember, we still need to run these few large businesses home each year to pay for all losses small and false signals and slippage and other costs of doing business on a daily basis. The basic problem for the "difficult" period that we have no trends, but that trends are not getting big enough or enough to pay for everything else. We're still in a distribution business has more offices lose than win, at least some of the few winners that we have yet to be affected big enough to cover all losses.
The question that we face as operators evolving becomes, which in any case, are we supposed to do about these things. In the past, I've been a leading advocate of the school of thought that says: "If it is not broke do not fix it." Of course, the Turtles, or any other trend followers, not receiving triple digits easily becomes two decades ago. Well, we were still doing better than anyone else around, and I for one do not see much of reason to complain, do not even bother about it.
But my thinking has changed over the past two years. I'm not giving the extreme values of 40 N, simply because not Come Around, often nothing more. I have not gotten to the point that if I see a tendency to approach 20 N gains, I start to put one foot in the door and looking around for signals warning for me to get the duck out quickly. The warning signs come in the form of some other types of indicators that I have learned to pay attention. But note that this is still only one of math and probability of choice, not of fear or emotion or just "want" to make a profit.
Without going into too much detail, let's say that at some point there might still be obvious that if you have a reasonable chance of capturing at least a big step you should try to wait for him. On the other hand, if the odds are great move below that happening, then at some point has to be better to take more profit smaller but more secure. And though the odds are not always quantifiable, and this is both an art and science it is, let's just say I've been improving on it with more experience over the years.
The conclusion is that where I used to hold as much as possible, often after the trend had invested in me, now I'm more quick to go first and ask questions later. And by the way, I made a little money on the table when the trend continued to advance and that he came early. But I also saved a lot more to recognize that the party was over and leave before the others ran to the door. And the funny thing is that one of my brokers believed to have become a better businessman, because he has always been an advocate blocking benefits and put some money in your pocket. But this is not the why I do what I do, my criteria are technical and unemotional in nature.
Of course, Dennis Richard was always a defender of use discretion to cancel mechanical technical criteria, the trick has been getting good at knowing how and when to do this. And I think this is something that can not be taught, even for me, but only comes with experience. Now I can look at half a dozen different things, including stochastic processes, market profiles, indicators of sentiment, and even press reports, and somehow assimilate all that in my mind and decide when it feels good "to make a occasional movement.
Last year at Thanksgiving, I left some trends in currencies right at the top of the market. This year, I got Energy from the right after Hurricane Katrina, two days off the top. As I've gotten better at this, I've also been able to strengthen the courage of my convictions to stick to my guns and second I do not imagine for myself. In the past, if I wanted to exit a trade too early and kept going, I think I made an error and then try to go back, at a price significantly worse when I got out. Now, once I'm out, I have the patience and discipline to stay out, and fight the temptation of jumping back around me and the whip.
It seems that when I'm wrong I'm wrong by a little, because although the movement go ahead, before going too far to finally peters out and turns. I left the yen last week and left about 1 N on the table so far. And I just Gold out of some of the other night, and right now is considerably higher again (also about 1 N). But when I'm right, as in gas Unleaded last August, I was able to save myself for about 10 N before the market to invest enough for the computer model to give finally a signal settlement. So it seems like a fair enough compromise for me. And it's a big reason that my personal trading account is exceeding the Turtle Team model so far in 2005.
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