Taking Profits TOO Quickly When Trend Following
It is very common new trend followers over ride their systems when they profits start to evaporate. This aspect of trend following can become an emotional battle. However the only way a trader stands the chance to succeed in trend following is to be consistent in their rules and do not supersede their rules.
In the below example, I have been long Live Cattle for some time. It has had a nice move with nice( rare) profits. It could be disheartening to give up profits but in trend following this is the norm. You will never sell at the top or buy the bottom. Depending on ones account size, situations like pullbacks ( potentially end of trend as well) could be pull back opportunities to add to the original positions. However with the leverage of commodities this is rather hard and risky. However with stocks, this is more of a scaling opportunity. For example you might have your initial position in which you scaled in as the stock moved up….Situations like pull backs to the 50 Day EXMA….or new highs after pull backs also give entries. In situations like this, I add between 10-20 percent of my total position size. This way if the additional entry does not work….I take my hopefully small loss and move on…
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE RISK OF LOSS IN TRADING COMMODITY FUTURES, OPTIONS, AND FOREIGN EXCHANGE (“FOREX”) IS SUBSTANTIAL.