What are the present and future prospects for trend-following systems? Do you think the growing prevalence of their use will doom them to eventual failure? No. All trading is done on some sort of system, whether or not it is conscious. Many of the good systems are
based on following trends. Life itself is based on trends. Birds start south for the winter and keep on going.
Companies track trends and alter their products accordingly. Tiny protozoa move in trends along chemical and
luminescence gradients.
The profitability of trading systems seems to move in cycles. Periods during which trend-following systems are
highly successful will lead to their increased popularity. As the number of system users increases, and the markets
shift from trending to directionless price action, these systems become unprofitable, and undercapitalized and inex-
perienced traders will get shaken out. Longevity is the key to success.
What are your thoughts about using fundamental analysis as an input in trading? Fundamentals that you read about are typically useless as the market has already discounted the price, and I
call them "funny-mentals." However, if you catch on early, before others believe, then you might have valuable
"surprise-a-mentals."
Your answer is a bit facetious. Does it imply that you only use technical analysis? I am primarily a trend trader with touches of hunches based on about twenty years of experience. In order of
importance to me are: (1) the long-term trend, (2) the current chart pattern, and (3) picking a good spot to buy or
sell. Those are the three primary components of my trading. Way down in very distant fourth place are my
fundamental ideas and, quite likely, on balance, they have cost me money.
By picking the right spot to buy, do you mean determining a reaction point at which you will buy? If so, how do you avoid sometimes missing major price moves? Oh no. If I were buying, my point would be above the market. I try to identify a point at which I expect the
market momentum to be strong in the direction of the trade, so as to reduce my probable risk. I don't try to pick a
bottom or top.
