I think it is safe for me to say every aspiring trader starts off with trend trading strategies. It’s easy to understand, easy to interpret, and easy to execute. I personally started as a trend trader. With the typical rules starting with:
- How to define the trend
- Where to place the stop-loss
- Let the trade go or take profit at a high Reward: Risk ratio (such as 2-3x your risk)
Then it gets more complicated.
- Which timeframe?
- Which indicator?
- What settings for the indicator?
- What is this thing called “drawdown”?
Initially, I think most traders go through the beginner’s luck stage where their first few trend trades work out well.
Then they find they keep getting stopped out, and then give up, and go looking for other magic, holy grails.
The Turtle Traders have finally come out with their full story for a while now, in case you didn’t know. And the Turtle Traders have always been regarded as the de-facto proof that trend trading is the holy grail. The problem is not with the system. The problem lies within ourselves.
And that is why I cannot trade trends. Well, at least unless I can change who I am, and my own personality, my own biases, my own perspective of the market.
Asking me to be a trend trader is like asking an introvert to become an extrovert.
I have had success with trend trading and deep in my heart I always know it is the best, proven, method to trade profitably. So why did I give it up?
I gave up trend trading for a divergence approach for the same reason why you would switch your favourite restaurant to another which is more suitable for you. Perhaps it is nearer your workplace, or home. Perhaps you feel more comfortable there. Even though the quality of food may not be the same, you made the switch, because overall, you have found your new “favourite” and you’re comfortable and happy patronizing the new restaurant. Despite knowing it’s not as good, not as good value for money.
Similarly, I trade divergences and retracements, despite knowing for a fact trend trading reaps (theoretically) much higher rewards per risk over the long term, because I like trading divergences and retracements.
To be honest, while I have tried to compare results between my own trend trading method vs my divergence methods, I just gave up doing it because it was simply awful to test them at the same time. It is probably better if I had a partner to trade one method and I another, and then compare results. Then again, always remember, results tell nothing about the future, but only what happened in the past.
So here’s a short list why I don’t like to trade trends anymore. Please take this as an opinion piece, there will be fans and haters, but here are simply my thoughts on why I don’t like to trade trends:
- I don’t like to be stopped out in a whipsaw price movement (which is expected in a trend trading strategy)
- I don’t like to let profits run. I like to set profit targets. And trend trading requires you to set high profit targets, or let it run, which can be very infuriating. (Requires the amount of zen as the ocean in my perspective)
- Trends are best seen on hindsight, and this is one of my biggest problems with trend trading. As Elder nicely put it, you can’t trade in the middle of the chart. You are only faced with the “hard right wall” which is where the price is now. And there is no way you can know if the trend will end, whipsaw, fakeout, or be your friend.
And that’s why I don’t like to trade trends. Sure, for every point above, trend traders, breakout trend traders will have their counter points. And that further reinforces my point: The choice lies within yourself.
Happy trading, may you find your edge in your own trading strategy.