To Trend, or Not to Trend, is That the Question?

[TheNegotiator 13]

All through my time as a trader so far, I have heard of trend traders, position traders, scalpers, faders and numerous other styles of trading. What it all seems to come down to though is you either go with the market or you go against it. To me, this rather pidgeon holes traders. It tends to lock them into a certain market with certain tendencies and when changes come about, it will give pretty lean spells to them or kill them entirely. This is kind of a self regulating structure I guess.

 

I have over the course been more or less a reversion position trader if you like. Some markets are better than others for this, but at the moment, I am finding more and more we have these short term trends. It's really just overall balance but on a pretty big scale(in index futures). But generally speaking I just don't like to think of myself as a trend trader and the fact that I don't run trades overnight is somewhat limiting in this respect.

 

All this said, there are upsides and downsides to being a trend trader. You probably have a good deal of losing trades but your winners should be huge. You have I would say, to trade across multiple products and so get a great overview of the 'whole market', but also you're probably never going to be an expert in any. Your exits are in some cases a killer as you'll be trailing fairly wide, so you may end up 'missing out' on say 30% from your MFE. You're exits are very rule driven so perhaps less stressful(not to say non-trend traders exits aren't rule driven). When you have the right conditions you absolutely cream it. When you have the wrong conditions you'll probably get stuffed then stop trading just as there is a breakout leading to a trend!

 

Anyway, so my question to you guys is do you feel you can be both? Can a trader truly transcend trend and reversal and just be at one with the market in all conditions? I feel this is possible but more than anything is fraught with psychological issues. Switching seemlessly from one mindset to another can be quite challenging. I saw a funny thing in TT recently which I'd not noticed before. You can actually invert the DOM to show lower prices at the top and higher prices at the bottom! This tells me how strong the psychological tendencies we have can be once we have got used to something, as they put this into their program!

 

Of course there is a very clear other path to take here. Avoidance on recognition. Just stop trading in a sideways market if you are a trend trader or in a trending market as a reversion trader. Just seems to me that it's possible to be more than just a specific condition trader.

 

What do you guys think?

[wrbtrader 10]

  TheNegotiator said:

...Anyway, so my question to you guys is do you feel you can be both? Can a trader truly transcend trend and reversal and just be at one with the market in all conditions? I feel this is possible but more than anything is fraught with psychological issues. Switching seemlessly from one mindset to another can be quite challenging. I saw a funny thing in TT recently which I'd not noticed before. You can actually invert the DOM to show lower prices at the top and higher prices at the bottom! This tells me how strong the psychological tendencies we have can be once we have got used to something, as they put this into their program!

 

Of course there is a very clear other path to take here. Avoidance on recognition. Just stop trading in a sideways market if you are a trend trader or in a trending market as a reversion trader. Just seems to me that it's possible to be more than just a specific condition trader.

 

What do you guys think?

 

I'm a strong believer that to be a consistent profitable trader we need to play both sides to understand and exploit the weakness of either. Further, to get to the point of being a consistent profitable trader along with being such for several years, the trader has developed a strong understanding of the price action so that being able to "switch seamlessly from one mindset to another" is not difficult.

 

In contrast, it may be more difficult for someone that's profitable but doesn't have enough trading experience to make the change (switch) or adapt when market conditions change.

 

I myself like to trade volatile range price action but I made great improvements as a range trader when I learned how to recognize and trade trends or strong directional price actions.

[Tradewinds 12]

  TheNegotiator said:

. . . . , so my question to you guys is do you feel you can be both? Can a trader truly transcend trend and reversal and just be at one with the market in all conditions?

 

The answer is 'Yes'. But the trader needs to know what moves price and be able to read it very quickly. And even though understanding all conditions is more complicated on the surface, the underlying basics are the same no matter whether the market is trending or consolidating; smooth or choppy.

 

Probably very few traders are able to narrow their inputs down to only the critical ones that actually have some correlation to what price is doing.

[Dutchie 10]

  TheNegotiator said:

Anyway, so my question to you guys is do you feel you can be both? Can a trader truly transcend trend and reversal and just be at one with the market in all conditions? I feel this is possible but more than anything is fraught with psychological issues. Switching seemlessly from one mindset to another can be quite challenging. I saw a funny thing in TT recently which I'd not noticed before. You can actually invert the DOM to show lower prices at the top and higher prices at the bottom! This tells me how strong the psychological tendencies we have can be once we have got used to something, as they put this into their program!

 

Of course there is a very clear other path to take here. Avoidance on recognition. Just stop trading in a sideways market if you are a trend trader or in a trending market as a reversion trader. Just seems to me that it's possible to be more than just a specific condition trader.

 

What do you guys think?

 

Hi,

 

My experience is that you can only recognize sideways markets "after the fact". IMHO it is virtually impossible to tell when a sideways movement (correction or consolidation) is beginning or ending. However, sideways movements or corrections are perfect for breakout trade setups, since 90% of the time price will start moving in the direction of it's preceding trend. I have learned a lot from Robert Miner Dynamic Traders on this subject.

 

After a couple of years of trading I love trading (the end of) corrections once you know how to spot them. Implying I am a trendtrader.....

 

Cheers,

 

Peter a.k.a. Dutchie

Edited September 29, 2011 by TheNegotiator

[Interceptor 10]

I believe that time-frames are the key.

I trade trends on H4 and up, and I trade reversion on M15.

Market noise is ok, if you position yourself accordingly.

cheers

[TheNegotiator 13]

Personally, the way I attempt to go about trading reversion and trends is not a separate method, but a hybrid of the two. I think many people do try to 'run' a small part of a profitable trade where fixed targets(price, indicator, profit or whatever) have been met, but they don't truly treat it like a trend trader would as they are still in fixed mode so to speak.

 

I realise in this way I won't ever really catch the kind of profits on an individual trade that true trend traders take, but also I don't have to endure multiple losses in order to catch a big trend. Most importantly for me, I don't ever have to flip between the two different mindsets.

 

Anyone else a hybrid? Lol.

[Do Or Die 10]

  TheNegotiator said:

Anyone else a hybrid? Lol.

 

I thought I blabbered way too much about trading regimes to bore people. Good to see the mods didn't notice it

[zdo 20]

  TheNegotiator said:

All through my time as a trader so far, I have heard of trend traders, position traders, scalpers, faders and numerous other styles of trading. What it all seems to come down to though is you either go with the market or you go against it. To me, this rather pidgeon holes traders. It tends to lock them into a certain market with certain tendencies and when changes come about, it will give pretty lean spells to them or kill them entirely. This is kind of a self regulating structure I guess.

 

I have over the course been more or less a reversion position trader if you like. Some markets are better than others for this, but at the moment, I am finding more and more we have these short term trends. It's really just overall balance but on a pretty big scale(in index futures). But generally speaking I just don't like to think of myself as a trend trader and the fact that I don't run trades overnight is somewhat limiting in this respect.

 

All this said, there are upsides and downsides to being a trend trader. You probably have a good deal of losing trades but your winners should be huge. You have I would say, to trade across multiple products and so get a great overview of the 'whole market', but also you're probably never going to be an expert in any. Your exits are in some cases a killer as you'll be trailing fairly wide, so you may end up 'missing out' on say 30% from your MFE. You're exits are very rule driven so perhaps less stressful(not to say non-trend traders exits aren't rule driven). When you have the right conditions you absolutely cream it. When you have the wrong conditions you'll probably get stuffed then stop trading just as there is a breakout leading to a trend!

 

Anyway, so my question to you guys is do you feel you can be both? Can a trader truly transcend trend and reversal and just be at one with the market in all conditions? I feel this is possible but more than anything is fraught with psychological issues. Switching seemlessly from one mindset to another can be quite challenging. I saw a funny thing in TT recently which I'd not noticed before. You can actually invert the DOM to show lower prices at the top and higher prices at the bottom! This tells me how strong the psychological tendencies we have can be once we have got used to something, as they put this into their program!

 

Of course there is a very clear other path to take here. Avoidance on recognition. Just stop trading in a sideways market if you are a trend trader or in a trending market as a reversion trader. Just seems to me that it's possible to be more than just a specific condition trader.

 

What do you guys think?

 

re "What do you guys think?" I think you are at one of those opportunity crossroads

 

Typing the market and then applying the appropriate system to the current conditions is at the very core of my work to master trading

 

“Switching seamlessly” is a lifetime ideal I shoot for. It is literally a life passion for me. I go through times when it just flows, simply, elegantly … and times when I end up almost bloody head banging bloody …

 

Biases… the bias that a trend will continue can be very strong when it’s around ‘in there’ … when that bias is absent it looks like the end of every trend is immediately imminent.

 

I’m not an evangelist for others to take this path. Actually, I can’t really say much at all about this for you and other traders any more – it is more my own personal struggle and if you take it up it will be your own very unique challenge. I meet other traders who obviously have better nature and nurture in the ‘psychological’ docility it takes, but mentally either don’t have the inclination or a clue. I meet others who have the mental robustness but don’t have the emotional flippancy required. Both those are exceptions though, most traders I meet about this just return a blank stare

 

Going full blown “Switching” is best done on short time frames. As others have alluded to, on longer time frames you can be way past your stop point before being able to identify that conditions have changed – :haha: then suddenly nothing is ‘seamless’ is it?

 

In real time categorizing, the closer to the tick your sampling is the better, at the tick level is best!!!!

The following makes things considerably more complicated than I would like especially in 'quantification' work but ---I have wrastled with this stuff for 80% of my career and after much resistance, I had to concede and acknowledge the presence of multiple concurrent auctions in our modern markets... hth

 

sorry to cut it short but I gotta scoot.

 

all the best,

 

zdo

[TheNegotiator 13]

zdo,

 

I have been at, passed through and am yet to arrive at various different crossroads in my trading and my life. This question however, was opened up to members to elicit thought for anyone who trades. It wasn't that I wanted an answer for me, but a discussion for everyone.

 

I think what people who 'make it' eventually understand is that all the complex ideas and indicators about trading and how to identify conditions really don't help much in the end. The most complex thing is how to simplify your trading down to what actually matters. Then you have to realise that being right is really not of overriding importance.

 

Try not to get too hung up on getting the conditions right all the time. Just know when to stop. The other thing which is all too often missed by traders(I know I'm digressing!) is that many do know how to make money and can, but they don't perform on a consistent basis. I don't know if you like sports, but tell me the difference between top teams in the NFL and bottom teams, or anything like premier league football(or soccer to some). The main difference is level of performance on a consistent basis. Maybe some ability. But mostly they are all pretty damn good from a skills perspective. That's probably what will really be the difference maker in many cases.

 

Anyway, thanks for sharing your experiences too and try not to damage your head too much!!

[RealDemo 10]

My personal view is that the necessity to see and recognise these changing conditions is a key skill to be learned and practised from the very foundation of your trading endeavour.

 

Essential definitions of trend and an ability to understand timescales are crucial to knowing where you are and what frame of mind the market is in, this includes the idea of risk hungry and risk averse markets.

 

It's the physics if you like of the market, it trends and consolidates all the time and in all timeframes.

 

You play the probabilities in your chosen time frame and you play within that framework.

 

You may well be trading a 5m chart at the london open but that's not important. You gather confluence around your trade ideas like a detective might gather clues to a crime.

 

If your bias has been well analysed your trade may allow opportunities to expand the framework and leave a part of it to develop to greater profit, running winners, but this is also about being very pro-active in trade management, an underrated component of winning trading skills. Alternatively if you've ballzed it up and it's time to take a hit, your strategy should bail you before it gets uncomfortable.

 

The OP's idea of your either with it or against it is bang on, that's all there is, you can stick a dress on it if you want but the pig remains a pig.

Interesting then if you look at for example FXCM's "trader sentiment" data, it seems that the vast majority of retail traders are looking for reversals and not trend trading at all.

 

A very recent example of todays GBPUSD is a jump of 38% taking long positions, maybe looking for the double bottom reversal in this pair. Perfect moment to be asking that "market condition" question in this pair.

[SIUYA 11]

I also think this direction of questioning takes into more than just the simple - do i trend trade or mean revert. As others have brought up.....

It raises a lot more questions with regards time frames, associated entry and exit levels - (when trading with the trend are you looking to enter/exit against the trend ???, so are you a trend follower, or a mean reverter sticking with the overall trend), how wide stops are etc etc.....

 

IMHO a massive, massive aspect is the personal mentality and ability to either change with the market, or wear the various mental gymnastics associated with various types of styles.

Given most traders cannot seem to master one style its seems an extra leap to ask many to try and master many.

 

Personally I have tried to be as flexible and maleable as possible, however rather than the head bashing frustration this usually implies of changing with the market, I have found it easiest to stick to one style and modify my entries.....ie; if I think the trend is down I only enter shorts, these will depend on then the next question - should I enter shorts on breaks or rallies, are these then with tight stops or given a little more room. The exits are largely based on these questions with the default to let it ride....again this works when being more than a day trader

 

The other key thing that I find helps is to separate styles and accounts...if you wish to trade longer term with the occasional short term scalps, open a new account....dont cheat and lean on one style at the expense of the other.....its too easy to kid yourself.

[zdo 20]

  TheNegotiator said:

zdo,

 

I have been at, passed through and am yet to arrive at various different crossroads in my trading and my life. This question however, was opened up to members to elicit thought for anyone who trades. It wasn't that I wanted an answer for me, but a discussion for everyone.

 

 

negoc8r

Sure, __ ___’_ _______?

____ __________ ___ ______ ____ ____ setup ___ _ post?

 

zdo

 

[zdo 20]

  SIUYA said:

I also think this direction of questioning takes into more than just the simple - do i trend trade or mean revert. As others have brought up.....

It raises a lot more questions with regards time frames, associated entry and exit levels - (when trading with the trend are you looking to enter/exit against the trend ???,

 

IMHO a massive, massive aspect is the personal mentality and ability to either change with the market, or wear the various mental gymnastics associated with various types of styles.

Given most traders cannot seem to master one style its seems an extra leap to ask many to try and master many.

...

The other key thing that I find helps is to separate styles and accounts...if you wish to trade longer term with the occasional short term scalps, open a new account....dont cheat and lean on one style at the expense of the other.....its too easy to kid yourself.

 

Well put - especially "Given most traders cannot seem to master one style its seems an extra leap to ask many to try and master many."

 

btw and fwiw - neither 'trending' and 'reverting' as concepts or terms are part of my MarketTyping model...

 

It must be David Varadi's day!

 

  Quote

There are many different types of market states–the longer term that are more aptly called “regimes”, and the short-term shifts in the market that I call short-term “waves.” Different types of waves can exist within the context of a regime. For example, we can have a brief wave of volatility bursts or a wave of “chop” within the context of a regime that is best described as an up trend with low volatility. Waves can be very brief–lasting from a few days to a week or more, while regimes often last a month and can last up to a full year. What I find interesting is that market states are always in the state of flux–one can even measure the likelihood of a regime or wave ending on the basis of historical precedent. This type of methodology is a part of what I like to call “state-based classification”, and the goal is to partition strategies according to their expected performance in both waves and regimes. Accurate state-based classification is extremely valuable, because if we know how a particular type of strategy behaves in a given market state we can “anticipate” how to adjust our portfolio allocation or position size. For example, it is well-known and logical to state that mean-reversion performs well during conditions of high volatility. In this case, if we can predict volatility, we can predict when to allocate more or less to a mean-reversion strategy.

 

Unlike conventional “swarm” or rotational strategies for adaptation–which reacts rather than anticipates—a clear sense of how to adjust for market states permits smoother transitions. You trade off one form of “error” for another: 1) “state adjustment error“: Swarm adaptation will be pushed towards what is working well with a fair degree of lag, and thus will adjust to “waves” incorrectly since they are transient. however, it should be able to adjust to regimes correctly as long as they persist for longer than one month. 2)”strategy classification error“: in contrast “state-based classification” faces the risk of incorrectly identifying the strategies most likely to perform well during a given wave or regime. I like to call this “strategy classification error” since you are making a judgement based on historical performance in advance and the actual strategy may not perform according to expectations during a given regime. This type of error is unlikely to be made by swarm/momentum type strategies since they will move towards what is actually working.

 

Again, it is logical to combine both procedures to enhance results. Using a swarm or relative-strength algorithm to confirm expected strategy performance within a given regime (or wave) is the penultimate form of “hypothesis testing.” You build a theory based on historical testing of a given strategy in a given state, and then once that state is confirmed to be present, you observe to see if the strategy is performing according to expectations in “reality.” Using anticipatory state-based strategies take this to the next dimension where you are predicting what states are most likely to occur and then looking to get earlier evidence from strategy performance prior to confirmation that you are in a given regime/wave. You can even bet a small amount in advance, and wait for confirmation so to speak.

 

Even if you are not creating an adaptive algorithm, these concepts are highly valuable for discretionary trading. After all, an algorithm is often designed to capture how a good trader with the objectivity and tools of a scientist would make a given decision. Thinking about these topics is a little less abstract for me because they relate directly to my experiences playing high level No-Limit Texas Holdem. Everything you do to be successful at a high level involves anticipation of how a given hand will play in a certain situation, a calculation of possible outcomes, betting in advance, and waiting for confirmation before going “all-in.” However, even for highly intelligent people—or perhaps most dangerously for intelligent people, they wish to trade or invest (and in poker too!) in some deterministic universe where the proper course of action is always clear-cut and logical. On the other hand the average person wants to always be right, and desperately seeks a formula that is reliable with an unreasonable degree of accuracy. They spend most of their time seeking new gurus or indicators that will solve their problems, and unfortunately tend to select what has worked best in a regime that is already past its prime. As a consequence, they are always behind the curve, and lose with an incredibly high frequency. Thinking about market states is a perilous but highly profitable path for the un-initiated. However, it is worthwhile considering how these concepts will inevitably affect your trading

 

(highlights mine)

[TheNegotiator 13]

  zdo said:

negoc8r

Sure, __ ___’_ _______?

____ __________ ___ ______ ____ ____ setup ___ _ post?

 

zdo

 

 

I'm sorry I don't get it. Maybe the market has addled my mind!

[TheNegotiator 13]

  SIUYA said:

Given most traders cannot seem to master one style its seems an extra leap to ask many to try and master many.

 

So true. But I know a number of very good traders who are terrible in certain market conditions but excellent in others. The reason for their success is being quick to identify market conditions - pressing in the right ones and stepping back in the wrong ones. If they can identify the conditions so well, surely it shouldn't be too difficult to come up with some better ideas to trade the "wrong" conditions. But maybe that's just it. These guys lose when conditions change but are really quick to slam on the brakes.

 

It's really interesting how different people grasp different concepts. I think many people don't get the importance of the often said advice of "Find a market and style that suits your personality".

[SIUYA 11]

  TheNegotiator said:

The reason for their success is being quick to identify market conditions - pressing in the right ones and stepping back in the wrong ones.

 

I think also this is the difference between a good setup verses a trade trigger. Often people think they are one and the same, but I think a god setup can be a whole series of events prior to any real trigger.

This also relates a lot to making sure you have a theory/philosophy for how the market works that makes sense. If you dont know how a market works - or at least how you think it works - then its hard to be able to identify why and when its likely to do something AS PART OF YOUR THEORY.......then you can work out how best to profit from it.

 

(eg; While many out of the box systems have similar triggers and entry styles, often they dont have a rationale for the market that you can truly believe in. IMHO, while I dont need to know how a chainsaw works to use it, if used incorrectly, that lack of knowledge can be dangerous if it goes wrong)

 

  TheNegotiator said:

If they can identify the conditions so well, surely it shouldn't be too difficult to come up with some better ideas to trade the "wrong" conditions. But maybe that's just it. These guys lose when conditions change but are really quick to slam on the brakes.

 

Absolutely. Often there is a lot to be said about knowing thyself (thanks Zdo)

For some people realising their greatest strength might be knowing when to do nothing. Just because something is challenging does not mean its profitable and time well spent. the chellenge might be enjoyable, worthwhile pursuing for the challenge but ultimately not necessary to succeed.

 

Also I think that the word wrong is interesting.......are the conditions wrong, or is the personality/mindset not appropriate/conducive to the conditions????

 

Anyone can be taught to read..... but some people become good readers, some only read certain styles, some read fast, or slow, some read every word, some read the context. others dont like it all, some are just bad at it for various reasons.....but the words on the page dont change for any of the players.

 

So in terms of identifying changing market conditions, ultimately that is what we are all trying to do, and then we need to identify how best to profit from that.

 

food for thought.

[SIUYA 11]

Zdo - a good little paragraph. thanks.

I thought the part just above where you highlighted was particularly apt...

 

"However, even for highly intelligent people—or perhaps most dangerously for intelligent people, they wish to trade or invest (and in poker too!) in some deterministic universe where the proper course of action is always clear-cut and logical. On the other hand the average person wants to always be right, and desperately seeks a formula that is reliable with an unreasonable degree of accuracy. They spend most of their time seeking new gurus or indicators that will solve their problems, and unfortunately tend to select what has worked best in a regime that is already past its prime. As a consequence, they are always behind the curve, and lose with an incredibly high frequency."

 

Even when experienced (I have and I assume others have as well at various stages ) fallen into the trap of trying to seek a reliable formula with an unreasonable degree of accuracy......

 

While continual searching and head banging frustration of challenges can be an enjoyable task for some.....it can also be unnecessary and often detrimental to the process of being profitable maybe.

[TheNegotiator 13]

A little example today reminded me of this thread. Over in the day-trading-e-mini-futures thread, I made the note that (post #282 diagram) above 1235.75 I felt the E-mini S&P 500 was going to be out of balance. This often leads to a trend. So contextually, I was looking to follow not fade the market today.

 

The large blue profile is the balance volume from the beginning of August.

 

[starborg9 10]

To be prepaired for whatever may come. more than one timeframe is needed.

If one only trades on a 5min chart, what may seem as a trend may be jusr a pullback or a retracement on a 30min timeframe.

If you have both you can trade the trend on the higher one, or if there's no trend you can define the box on it, and scalp on the 5min

between the box high/low using slow stochastics, which was developed specifically for sideway markets when trading came to a

virtual stand-still after the Great Depression (stochs are useless in a trending market).

 

For newbies, it serves to practise and master one setup first that they can quickly and easily identify, and not get bogged down in complexities

that can confuse, delay, and even paralyze. Been there. Once you achieve confidence using one setup, add another.

Or not, many successful traders have only 1 or 2.

[TheNegotiator 13]

starborg9, I don't know whether many highly successful traders only have 1 or 2 strategies. I guess it depends how flexible the approach is and whether those strategies give multiple entry types or not.

[bootstrap 47]

i think that what most do not get is the purpose of trading.

trading is not make a killing, trading is make X consistently.

 

my goal was and still is to make $300/per day per $50k. In the beginning did i have 50k. no. but i traded as if i did, just scaled down.

 

newbies and veterans alike get lost in the OMG trade. do they happen, well duh. of course they do. but they are rare and gravy on the top.

 

the best advice i can give is this... trading = income, investing = wealth. trading is who cares what the trend is, investing is where is the trend.

 

which are you? there is no wrong or right answer. just stop looking.