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Can Trend Following End In The Commodity Markets?

Commodities / Commodities Trading Sep 09, 2009 - 03:54 AM GMT

By: Andrew_Abraham


The question is… Can trend following end? First of all… anything can happen and it will happen. However as a long time trend follower, in my opinion there are numerous reasons why I do not believe trend following can or will end. The question came up when I was in a meeting with an institutional investor earlier in the week and in all of his years exposed just to the equities markets, he was skeptical of trend following. He asked if everyone knew the concept of trend following the results would falter.

Interesting question I told him and told him if we were so lucky to read the front page of tomorrows business page that probably would not help us to make money. In my opinion why Trend following has worked and probably stands a very strong chance of continuing is the basis of human nature. This is what separates long term successful investors & commodity trading advisors and the non successful investors. After years of observations of the commodity markets, forex markets and stock markets nothing ever changes. Bubbles..egos…fear.. over and over again.

Firstly few investors really have a thought out plan. Trend followers have a plan and benefit from those who do not have a plan. Next, How many investors give up after a few loses in a row? The answer is the majority. It is easier for them to be a buy and hold investor. This way they do not have to realize their losses. How many so called investors are still holding their Nasdaq index funds after the 2000 blowup?

Next… There would have to be a major shift of investors from fundamental analysts to technical analysts. The concept of technical analysis professes that one can go equally long as well as short. Last year short sellers were made to be the devil and the cause of the crisis.Next, Investors would need to realize this is hard work. They would not listen to the gurus on Bloomberg or CNBC to make money anymore. Investors would need to have a full plan that not only encompasses buying and selling but HOW MUCH.

So many times we read in the business press one hedge fund or investment blows up. The reason is leverage and disregard for the mentioned “too much risk”. If investors want to be successful they need to think of risk per trade…risk per sector…and total overall portfolio risk. The fact is most investors do not think this way is one of the forefront reasons Trend following should continue in the future. Trend following commodity trading advisors take advantages of the fear and the greed in the commodity markets. They do not predict them…but ride them with a thought out plan. The fact is people are emotional beings. They have egos…fears…and greed. These emotions cause trends.

Trend following commodity trading advisors take advantage of these emotions. The key to compounding your way to wealth is having a plan…discipline…and patience to let the plan work out. Commodity trading as well as forex trading is one of the hardest careers to master.

Andrew Abraham

Andrew Abraham has been in the financial arena since 1990. He is a commodity trading ddvisor and co manager of a Commodity Pool. Since 1993 Andrew has been a proponent of quantitative mechanical trading programs. Andrew's major concern is not only total return on investment but rather the amount of risk that one would have to tolerate in order to achieve returns He focuses on developing quant models that encompass strict risk adherence and correlation. He has been a speaker at conferences as well as an author of numerous articles. Andrew has spent years researching ideas that have the potential to outperform indices as well as maintain fewer draw downs.

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© 2009 Copyright Andrew Abraham - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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