Portfolio Selection When Trend Following

Portfolio selection is one of the factors in trend following profitability. This does not matter if it is stock selection or a large basket of commodities.
Regarding Stocks, I am of the school of Canslim. Canslim is a combination of both technical and fundamental. As in trend following, we look for break outs and retracements. The key is the selection of the portfolio of the watch list…

We want very profitable companies with growing earnings both quarterly and annually.

baba

nvdaq

More so with Commodities, one needs to look at a very large portfolio and use a relative strength basis to determine which commodities are the strongest and which are the weakest. From that point look to buy the strongest and sell the weakest.

Many commodity traders did not even think about Rubber. This has been a big mover ( who knows how long it will last). Contrarily Cocoa is hitting multi year lows. The key to trend following is have the patience to keep with trades as they working. Clearly trailing stops are being used. It can be anything from moving averages to trailing ATR stops. Nothing has to be rocket science. The rocket science is the discipline of having multiple trades not work…yes…loose money…and having the fortitude to put on the next trade. You never know what trades will work and which trades will not work when Trend following.

cocoa

HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.

ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.”