Trend Following Success- Intelligence or Discipline
I seem to have this discussion quit often. In order to achieve success in the commodity markets or forex markets does one need to have a higher level of intelligence than most. Past experience has proven this not to be the case. Example after example both public as well as in our brokerage have proven this to me. The best example of how great intelligence did not assist in results is Long Term Capital. Their offices were full of PHDs. This did not seem to help them. They forgot the holy grail of trading, RISK MANAGEMENT. They blew up not once… but I think they blew up a second time. In our brokerage I have seen some very smart people and 1 PHD who had the most complicated (and interesting) ideas but they did not make any money. My goal is to compound money…and I learned what works and what does not. Trend following a large basket over time offers the best potential. It is not rocket science…The real deal is Discipline and Patience. Our model in which we have traded real time for more than 2 years does not need our intellectual capabilities. The reason our model works is very simple, our risk and money management.We know that no one ..not CNBC or Bloomberg can know in advance what will happen in any market. Even more interesting is that …even if they did…the markets can react in a way no one even expects. None of the daily noise in the markets or news effects our model. More so…our egos… pride… opinions do not come into play.
The irony is people expect successful traders to know the future. Due to this, it is hard for them to like trend following. I have heard a myriad of reasons such as it takes too much time, you are not having a good period or the best one.. it is boring. Understanding these statements is what makes a difference between a successful investor and not a successful investor. Another example is, after earning double digits last year for us and our clients…had a client say… you really have not done really well this year… nothing has happened. Taking this into context… he was asked.. how did your mutual funds do over the last 10 years…duh… How about nothing..how about down..This is an example of patience and discipline in trend following in the commodity markets and forex markets. More so… we did not graduate Cum Laude from Harvard nor any of us work for Goldman Sachs. We are not on Wall Street.
Some investors don’t like these facts. Again it is funny when one of the most successful trend followers last year was a taxi driver… now managing $4 billion dollars, or there is the ex policeman from Vienna Christian Baha, let alone the offsprings of the turtle traders.
The key to successful investing in the commodity markets and forex markets are plain and simple. Simple ideas that have stood the test of time… with a strong measure of risk and money management… Discipline and Patience. The rest is empty ego…and not the way to compound your way to wealth.
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Futures and commodity trading involve substantial risk.People can and do lose money trading.