computerized trend-following trading during the past five to ten years? Are there just too many people doing the same thing, getting in each other's way? Yes, there is no doubt about it. In a perverse sort of way, it represents the ultimate triumph of technical
trading over fundamental trading. I say perverse because it is a victory that devalues technical trading.
Do you think we may see the day when trend-following systems no longer work? There will come a day when easily discovered and lightly conceived trend-following systems no longer work. It
is going to be harder to develop good systems.
Given that, can the approaches you were using before still work with the same efficacy? Actually, I believe that if you view the problem correctly, you can make the fact that there are many other
trend followers in the market work to your advantage. I can't get too specific about the solution, because if we are
right, that is pretty valuable information. To be successful you always have to be one step ahead of everyone else.
It sounds like you started working on this problem well before your performance problems began in late 1987. That's right. During the past ten years, there has been a virtual bandwagon-effect of people using trend-
following approaches. We have been thinking about this problem for a long time. Half the work in solving a problem is
finding the right way to conceptualize it. It took us years before we figured out the right questions to ask.
When did you finally arrive at what you considered a satisfactory solution? Ironically, right around the time we closed down the public funds.
I know you can't be specific, but does your solution to false breakouts involve being far more short-term oriented, so that you can respond more quickly to those situations? The secret is being as short term or as long term as you can stand, depending on your trading style. It is the
intermediate term that picks up the vast majority of trend followers. The best strategy is to avoid the middle like the
plague.
