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Trend Following was my eight-year “hazardous journey” for the truth about trend-following trading. was meant to fill a void in a marketplace inundated with books about finance and trading, but that lacked any resource or reference to the best strategy to make money in the markets: trend-following trading.

I have come to learn over time that trend following is a confusing term. The best definition I have seen comes from trading psychologist Van Tharp: “Let’s break down the term ‘trend following’ into its components. The first part is ‘trend.’ Every trader needs a trend to make money. If you think about it, no matter what the technique, if there is not a trend after you buy, then you will not be able to sell at higher prices.

“‘Following’ is the next part of the term. We use this word because trend followers always wait for the trend to shift first, then follow it.”

Trend following quite simply seeks to capture the majority of a trend, up or down, for profit. It trades for profits in the major asset classes of stocks, bonds, currencies and commodities.

That’s the simple part. Now for the controversial part of trend following.

Lao Tzu, a philosopher from the 6th century B.C., once said, “Those who have knowledge don’t predict, and those who predict do not have knowledge.” Trend followers do not predict market direction. They can’t predict the next big trend, and they can’t predict their performance. People have a hard time accepting those simple truths in a world where CNBC makes it seem like the next bit of news will be crucial to your trading account.

Probably the most-asked question I get on the subject is not directly related to trend-following trading. People want to know, “Have the markets changed?” The short and sweet answer is, “No, the markets have not changed.” Markets behave the same as they did 300 years ago. They are the same today because they always change.

Trend followers believe that if you have a trading system that’s sound — meaning its principles are designed to adapt — you can take advantage of market changes and make money. Changes in markets are no different from changes in the business world or in other areas of life. They will not hurt you if your strategy for handling them is based on reality, flexibility and responsibility for making your own decisions.

Consider the wisdom of John W. Henry, owner of the Boston Red Sox and a legend in the field of trend following: If you have a valid basic philosophy, the fact that things change turns out to be a benefit. At least you can survive. At the very least, you will survive over the long term. But if you don’t have a valid basic philosophy, you won’t be successful because change will eventually kill you.

I knew I could not predict anything, and that is why we decided to follow trends, and that is why we’ve been so successful. We simply follow trends. No matter how ridiculous those trends appear to be at the beginning, and no matter how extended or how irrational they seem at the end, we follow trends.

Still others are unconvinced of Henry’s logic. They argue that technology has erased any trading edge found by trend followers, thereby changing the markets. I disagree. Computers don’t erase “edge.” For every trader with a computer program saying “buy,” there are nine other traders with computer programs saying “sell.” No matter what you do, markets go through different stages: accumulation, runup, distribution and decline.

You need a plan to handle those stages with a positive expected value, just like the edge maintained by the Vegas casinos.

Look at it this way. You are just starting out. You are new to the game. Perhaps you have had some career success and saved a little money. Perhaps not. Maybe you are in college, maybe you are retired, or maybe you’re just ready to trade. Whatever the reason, once you start the process of entering the markets, you will need money to play the game.

There is no stated minimum capital to trading as a trend follower. There is no magic number. There are many factors relating to your starting capital, not the least of which is your own personal discipline and ability to stick with a trading system or stick with a trading advisor. Anyone who gives you an exact figure for starting capital is either conning you, or more probably, dismissing your query with a mindless answer. A top trader was asked this same question. He responded, “I ask the trader who thinks he needs a certain amount before he can trade exactly what amount he would need to stop trading.”

No one can guarantee you profits, whether you start trading with $5,000, $500,000 or $5 million. There is no dollar amount too little or too big that allows you to sit back and assume that your starting capital alone is some pivotal key to success. Rather than focusing on starting capital, decide how you are going to trade. What is your trading strategy going to be? Have you answered these five questions?
- How do you determine what market to buy or sell at any time?
- How much of a market do you buy or sell at any time?
- How do you determine when you buy or sell a market?
- How do you determine when you get out of a losing position?
- How do you determine when you get out of a winning position?

A complete trend-trading system uses these five questions to establish rules for entry and exit, along with rules about how much to buy or sell at any given time. Trend followers have rules ready to answer those five questions regardless of the particular day, week, month, year or current market condition.

Still, people ask, “How do you determine a trending market?” Wrong question! The question is, “How do you make money?” The answer involves taking small bets early on in a market (that is, starting to move or trend) to see whether the move matures and ends as a big trend. Trend followers enter markets long before the nightly news is reporting new 13-year highs in whatever market.

When the financial news starts talking about high oil prices or a stock at record lows or highs, trend followers have long since established their positions (and profits) and may be exiting when the late-to-the-party amateurs start taking their positions.

At the end of the day, good trading is a game. It’s all about odds. It’s all about probabilities and payouts. Trend followers focus their energy there, not where 99% of the crowd fixates. It’s their edge.

TSX tumbles on lower commodities, credit worries

Falling commodity prices and worries about further credit writedownssent resource and financial shares sharply lower Thursday.

The S&P/TSX composite index slid 250 points to close at 13,524.

Weakness in commodity prices was responsible for much of the drop. The golds sector shed 2.9 per cent as bullion futures plunged $28 US an ounce to $786.70 US an ounce as the U.S. dollar gained strength. Silver futures fell almost four per cent.

The metals and minerals group dropped 3.4 per cent and energy stocks slid 1.3 per cent. Oil prices fell 66 cents to $93.43 US a barrel following an unexpected increase in U.S crude inventories.Copper prices slid more than six per cent.

A four per cent drop in the consumer staples group was due largely to shares of Loblaw, which lost 12 per cent of their value (down $5.04 to $35.55) after the grocery giant reporteda bigger-than-expected plunge in quarterly earnings.

The heavily-weighted financials group dropped two per cent amid a continuing parade of foreign banks announcing major writedowns related to the slumping U.S. mortgage market and the resulting credit crunch.

Britain’s Barclays Capitalannounced a $2.7 billion US writedown Thursday

Shares of all the big banks fell, led by CIBC’s fall of $3.73 to $88.57.

Financial stocks in Canada and the U.S. sold off on fears that more big credit-related writedowns are coming. The chief executive of the second biggest U.S.mortgage lender, Wells Fargo, told a conference Thursday thatthe U.S. housing downturn wasthe worst since the Great Depression and was far from being over.

The Dow Jones industrial average fell 121 points to 13,109.

The Canadian dollar lost almost two full cents to close at $1.0151US as the slide continued from its $1.10 US top reached a little more than a week ago.

Dividend Growth Puts Buckle In Exclusive Club

Kearney, Neb.-based Buckle () raised its dividend six times since it began paying one in 2003.

That’s made for a dividend growth rate of 79%, putting Buckle in an elite club.

Among the 1,592 dividend stocks that yield at least 2.1% which is what Buckle yields only 25 can match or beat Buckle’s dividend growth rate.

The operator of 370 teen apparel stores in 38 states gets good marks in Stock Checkup at Investors.com. It’s rated No. 1 in Overall, Technical and Attractiveness ranks in its 56-stock group.

The Retail-Clothing/Shoe industry group carries an A in six-month price performance.

While the recent economic turbulence has grabbed headlines, Buckle has resisted the downturn. Its stock price is up about 46% year to date, even as the NYSE composite slipped about 8%.

Earnings increased 29%, 73%, 22% and 29% in the past four quarters. Sales improved 10%, 21%, 17% and 18% in the same period.

Same-store sales, a key measure, rose 18.7% in the fiscal fourth quarter ended in January.

Margin after tax was 14% in Q4, the best in at least 18 quarters.

Its EPS Stability Rating is 4, exceptionally solid on a gauge that runs from 1 to 99, with 1 being the best.

In the fourth quarter, Buckle exceeded analysts’ expectations by about 11%.

Also in the most recent quarter, mutual fund ownership increased slightly, from 66 funds holding 5.7 million shares to 74 funds holding 5.9 million shares.

Some of that new money is smart money. Hedge fund manager Jeffrey Vinik, of Fidelity Magellan fame, increased his stake from 45,400 shares to 340,400 shares in the fourth quarter of 2007.

Telus ordered to refund some customers over access fee

BY PAUL JAY The federal telecommunications regulator has ordered Telus Corp. to refund some customers who were forced to pay a network-access charge.

The Canadian Radio-television and Telecommunications Commission (CRTC) said Telus “improperly” charged a monthly $2.95 fee to customers who did not use its long-distance network.

But the CRTC said Telus customers who did make long-distance calls through Telus or another provider in the same month would not be eligible for a refund.

“When applied to customers who did not make any long-distance calls, the monthly fee was equivalent to an unauthorized increase to the residential local service rate,” said CRTC chair Konrad von Finckenstein in a statement.

“We will use our powers whenever necessary to uphold the interests of consumers of telecommunications services, particularly in instances when companies impose unauthorized charges.”

The ruling came in response to an application filed by Yak Communications (Canada) Corp. and two consumer advocacy groups asking that the CRTC ask Telus to drop the fee and reimburse customers.

Telus introduced the charge in November to customers in Alberta and British Columbia who had not signed up for a long-distance plan, and the charge applied whether the customer made no long-distance calls or used a dial-around long-distance service such as Yak.

The CRTC said close to half a million customers in the two provinces were charged the fee.

The only way customers could avoid paying the fee was by subscribing to the company’s Call Guardian service, which does not permit long-distance calls.

As part of the ruling, the CRTC has also directed Telus to waive the $10 cancellation fee for Call Guardian to those subscribers who signed on after October in an effort to avoid the network-access fee.

The CRTC doesn’t regulate long-distance calls, but access to the service is considered part of local service, which the CRTC still regulates. Telus ‘disputes’ findings: spokesman

Telus spokesman Shawn Hall said the company was disappointed in the ruling.

“We dispute the CRTC’s findings,” he said. “We’re studying the decision and will review all of our options, including the possibility of an appeal.”

Hall said the fee was applied for a tangible service and that whether or not a customer accessed the long-distance network, the cost to the company was the same.

Telecommunications consultant Mark Goldberg said the ruling is in keeping withits promise to keep an eye out for consumers in markets where both unregulated and regulated areas existed, after it started deregulating the local-phone market in many major metropolitan areas throughout Canada in the second half of 2007.

But he said it’s not likely to have an impact on how telecommunications carriers administer other system access fees.

“I don’t think this is the start of more CRTC involvement in system access fees,” he told CBC News. “Most of those fees are found in cellular phone charges, or long-distance calls or internet services. And these are areas the CRTC doesn’t regulate. What we have here is an area the CRTC could actually weigh in on.”

Goldberg said the CRTC has chosen not to regulate those areas because it believes there is sufficient competition to let market forces prevail. Post a commentPeople have commented on this story Recommend this story People have recommended this story Story Tools: | | Text Size: | | Story comments (0) Sort: Most recent | First to last | Most recommended

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(Note: CBC does not endorse and is not responsible for the content of external sites - links will open in new window) People who read this also read … Money Headlines 00 Shares of Google Inc. shot up 20 per cent, or $89.82 US, on the Nasdaq Friday after the firm’s first-quarter profit topped analysts’ expectations. 00 Instability in Nigeria, a member of OPEC, was credited with helping to push the price of oil to $117 US per barrel on Friday. A rebel group said it sabotaged a pipeline. 00 Credential Securities said Friday it will buy back asset-backed commercial paper from smaller clients with up to $1 million in holdings. 00 GM Canada has used the wrong comparison when it says there is a $30-an-hour wage gap between Canadian autoworkers and employees at the U.S. plants owned by Japanese car companies, the head of the Canadian Autoworkers Union says. 00 A government move to delay mining in Ecuador knocked shares of Aurelian Resources Inc. down by nearly 32 per cent on Friday. Money Features «www.cbc.ca» «www.cbc.ca» «www.cbc.ca» «www.cbc.ca» BIZ HITVideo Update Hourly market wrap from CBC Newsworld

Nasdaq Extends Win Streak To Five

Watch today’s Markets Desk video.

Stocks tacked on more gains Wednesday, despite a couple of weaker-than-expected economic reports (see 11:00 am update).

According to preliminary data, the Nasdaq rose 0.3% and extended its winning streak to five. The S&P 500 crawled up 0.1%, the Dow 0.2%. Nasdaq volume fell about 13% and NYSE volume dropped 10%.

DXP Enterprises () rallied 1.75 to 42.24 on heavy volume as it continued to recover from a recent pullback. The industrial pump maker’s Accumulation/Distribution Rating has improved to B from D a couple of sessions ago. DXP was still 15% above a 36.71 buy point from a cup pattern.

THQ Inc. () rallied 1.94, or 6%, to an all-time high of 36.12 on nearly double its average trade. Late last month, A.G. Edwards started coverage of the video game publisher with a buy rating. THQ’s full-year 2007 profit is expected to surge 126%.

Arcelor Mittal () cleared a 54.45 buy point of a flat base. Shares jumped 1.44 to 55.04 on a 62% increase in volume. On Monday, the Luxembourg-based steel maker announced a $590 million share buy-back program. The stock is still within buying range up to 57.17 (the old high 54.35 plus 0.10 plus 5%).

On the downside, Monster Worldwide () gapped below its 200-day moving average and plunged 6.41, or 13%, to 42.10 on monster trade after it warned of lower sales in the first quarter. The online provider of employment services now expects Q1 sales between $328 million and $329 million. Its previous forecast was $330 million to $338 million. Analysts expected $333.1 million.

3:00 p.m. ET update: Indexes Pull Back In Late Trade

Stocks pared some gains going into the final hour of Wednesday’s session. The Nasdaq continued to lead the pack and was on pace for its fifth straight advance.

As of 2:40 p.m. ET, The Nasdaq added 0.3%. The S&P 500 was mostly unchanged. Nasdaq volume was tracking 12% lower. NYSE volume was tracking 15% lower.

Alternative energy, chip equipment, and gold/silver groups held on to gains. Transportation, staffing, and machinery groups were among the worst performers.

Mechel () erased early losses and picked up 2 points, or 6%, to 35.35, clearing a small consolidation. Last week, the Russian steel maker won an auction to buy a majority stake in Southern Kuzbass Power Plant.

Gildan Activewear () was off earlier highs, but still gained 1.72 of 62.02. Late last month, the clothing maker said it would close facilities in New York, Canada, and Mexico. The firm’s sales growth has accelerated for four straight quarters.

Standard Microsystems () added 0.80 to 32.65, its third straight heavy-volume advance. The maker of semiconductor solutions was nearing a 33.10 buy point in a cup-shaped pattern.

On the downside, U.S. Global Investors () turned tail after nearing its December high. Shares fell 1.28 to 30.59. The asset manager has surged since bouncing off its 40-week moving average last month.

1:00 p.m. ET update: Stocks Firm Up In Midday Trade

The major stock indexes turned higher midday Wednesday after a directionless morning.

As of 12:45 p.m. ET, The Nasdaq climbed 0.3% and the S&P 500 added 0.1%. Nasdaq volume was tracking 8% lower. NYSE volume was tracking 14% lower.

Chip equipment, alternative energy and gold/silver groups were among the top performers. Transportation, machinery and staffing groups headed lower.

Solar stocks heated up. SunPower () jumped 2.66, or 5%, to 49.80, clearing a short consolidation. The San Jose-based maker of solar power products boasts 10 straight quarters of triple-digit sales growth. Last week, Banc of America Securities started coverage with a buy rating.

Trina Solar () rallied 2.12 to 49.32 as it neared its all-time high. The China-based firm came public in December at 16 a share.

Perficient () bolted through a 20.95 buy point of a cup-with-handle pattern. Shares tacked on 1.30, or 6%, to 21.99. The IT consulting firm is featured in today’s Daily Stock Analysis.

Jones Soda () popped 1.22, or 6%, to an all-time high of 25.06. The beverage firm was on pace for its third straight heavy-volume advance. Jones has surged nearly 110% this year, trouncing its group’s performance of 5%.

Heavy-volume decliners included Ameristar Casinos (). It dropped 1.94, or 6%, to 30.53 on news that it would buy a unit of Resorts International Holdings LLC for $675 million in cash.

11:00 a.m. ET update: Stocks Little Changed In Early Trade

Stocks were narrowly mixed early Wednesday after Tuesday’s solid gains.

As of 10:45 a.m. ET, The Nasdaq rose 0.1%, while the S&P 500 was flat. Nasdaq volume was tracking 16% lower. NYSE volume was tracking 20% lower.

In economic news, the ISM services index fell to 52.4 in March from February’s 54.3. Economists expected a rise to 54.7. The prices paid component climbed to 63.3 from 53.8 as pricing pressure mounted.

Factory orders rose 1% in February, bouncing back from January’s 5.7% dive. But that fell shy of economists’ expectations of a 1.9% gain.

Acuity Brands () gapped above its 50-day moving average and rallied 3.65, or 7%, to 58.70 after it delivered earnings above views. Before the open, the maker of lighting and chemical products said fiscal second-quarter profit jumped 67% to 62 cents a share, beating views by 13 cents. The stock is shaping a new base after its early February highs.

Robbins & Myers () regained its 50-day line as shares gapped up and vaulted 5.22, or 14%, to 43.38. Late Tuesday, the maker of equipment systems for the energy, pharmaceutical, and industrial markets reported a 188% surge in fiscal Q2 earnings, but that was a penny below views. The company raised its full-year profit outlook to between $2.20 and $2.40 a share, from $2.10 to $2.30. Consensus estimates are for $2.30 a share.

Comtech Group () cleared an 18.19 buy point of a cup-with-handle pattern. It added 0.69 to 18.56. Volume was tracking about three times average.

A couple chip equipment makers scored nice gains after Stifel Nicolaus upgraded the sector to overweight from neutral. Varian Semiconductor Equipment Associates () gapped up 1.85 to a record high of 56.95 and MEMC Electronic Materials () jumped 2.62 to 62.34.

On the downside, Layne Christensen () pulled back 1.86 to 37.94 after Oppenheimer cut the stock to neutral from buy. On Tuesday, Layne climbed nearly 8% after its Q4 earnings shot up 110% and trounced views.