EDUCATION CENTRE

Geometric Progression

 

Geometric Progression. Sounds like a complicated math theorem. Its actually

a good term for what happens inside of a big trend. Epidemics are an example

of geometric progression. Starting with only a few people, an epidemic can

spread through a population as it multiplies again and again. When a virus

spreads, it doubles and doubles and doubles.
Market trends are no different. Extreme market trends can appear from out of

nowhere moving either up or down. These trends often feed upon themselves

and can quickly progress geometrically allowing the opportunity for huge

profits if you were in the trend early and are set with a trading plan. However,

people can have a hard time with this type of progression, because, like an

epidemic, the end result often seems out of proportion to the cause.
In order to appreciate why market progressions or trends can be so powerfully

rewarding, you must not expect proportionality. You need to prepare for the

possibility that sometimes big market changes follow small events, and that

sometimes that change can happen very quickly. Ultimately your appreciation

of geometric progressions comes from understanding and being prepared for

them. Trend Following is prepared to find and exploit those market trends long

before they arrive on the radar screen of the masses.

No Prediction

 

Trend Following (and the Turtle trading system) is reactive and systematic by

nature. Trend Following does not forecast or predict markets or price levels.

Prediction is simply NOT possible!

 

Stick to the Rules

 

Trend Following demands that you have strong self-discipline to follow precise

rules. It involves a risk management system that uses current market price, equity

level in an account and current market volatility. Trend Followers use an initial

risk rule that determines your position size at the time of entry. This means you

know exactly how much to buy or sell based on how much money you have.

Changes in price may lead to a gradual reduction or increase of your initial trade.

On the other hand, adverse price movements may lead to an exit for your entire

trade. Historically, Trend Following trader's average profit per trade is significantly

higher than the average loss per trade.

 

No Secrets

 

Trend Following is not a Holy Grail. It is not some passing fad or hyped-up secret

black box either. Beyond the mere rules, the human element is core to the strategy.

It takes discipline and emotional control to stick with Trend Following through the

inevitable market ups and downs. Keep in mind though, Trend Followers expect

ups and downs. They are planned for in advance.Trend Following strategies

produced high returns over the past +30 years. 

 

 

What must all trend followers consider?

 

Price Action

 

One of the first rules of Trend Following is that price is the main concern. If a market

is at 60 and goes to 58, 57, 53 - the market is in a down trend. Despite what every

technical indicator might predict, if the trend is down, stay with the trend. Indicators

showing where price will go next or what it should be doing are useless. A trader need

only be concerned with what the market is doing, not what the market might do. The

price tells you what the market is doing.

 

Money Management

 

The most critical factor of Trend Following is not the timing of the trade or the indicator,

but rather the determination of how much to trade over the course of the trend.

Risk Control

Trend Following is grounded in a system of risk control and money management. The

math is straightforward and easy to learn. During periods of higher market volatility,

your trading size is reduced. During losing periods, positions are reduced and trade size

is cut back. The main objective is to preserve capital until more favorable price trends

reappear. Cutting losses is the way to stay in the game.

 

Rules rule

 

Trend Following should be systematic. Price and time are pivotal at all times. Trend

Following is not based on an analysis of fundamental supply or demand factors. Trend

Following does  NOT involve seasonals, point and figure, Market Profile, triangles or day

trading. Trend Following answers these critical questions:

 

 

1.       How and when to enter the market.

2.       How many contracts or shares to trade at any time.

3.       How much money to risk on each trade.

4.       How to exit the trade if it becomes unprofitable.

5.       How to exit the trade if it becomes profitable.

 

 

Conclusions

 

If you want in-and-out day trading, we can't help. Good Trend Following systems

(including the Turtle trading system) average five or six trades per market per year.

Trading is a zero-sum game. For every winner, there is a loser. What's the difference

between winners and losers? Smarts and strategy. For every loser in the NASDAQ

implosion there was a winner. Does this mean that there are traders with neither

strategy nor smarts actively losing, effectively shifting their funds to the winners,

armed with strategy and smarts? Yes, absolutely.