While Gann suggests a few different rules as a trend follower, the one thing that has always stuck as a Safety in the Market student is “do not try to lead the market or make the market”; basically, don’t try to get too smart as the market is always right. Gann goes on to say, “Follow the trend, which is made by big men who make big money and you will make money… trade only when the market shows a definite trend and trade according to definite rules”. The reason I share this is because it all sounds so simple, yet people still struggle to condense their knowledge into this level of simplicity.
If we take a minute to review what Gann is really saying, he is essentially compiling three main points in order to make big money in short periods of time. These include:
- Do not try to out-smart the market or yourself;
- Only trade with the trend and follow institutional money; and
- Trade according to definite trading rules, which should always include an entry, exit, trade management and pyramid strategy.
Trend following is natural and not that complicated. However, complicated and easy is a juxtaposition. Trend following is probably one of the hardest and easiest things to do.
David Bowden designed the Smarter Starter Pack as a rule-based trend following system which is effective. The Smarter Starter Pack combined with the Number One Trading Plan allows you to maximise your strategy and knowledge to do exactly what Gann suggested, over sixty years ago. Yet, you can give 100 people the definite rules and only a handful will make money. Why is this the case? Is it our emotional baggage?
While emotional baggage might be one way to express it, a lot has to do with our routines, digital stress and information overload on our brains. Is this the cause of all the complexity? I don’t know but take a look at how many tabs or programs you have open, or even how busy you are right now in your day to day life. Odds are you are multi-tasking. As technology becomes more involved in our lives and our time is filled with more requirements, we are often left with having no option but to multi-task. Unfortunately, all this multi-tasking has left contradictive perceptions.
No doubt, many have tried the buy‐and‐hold (or buy‐and‐pray) method of stock market investing or real estate and realised it may not be the way or that it is the lazy way. In saying that sometimes it can be just as profitable, though being a trader, you are more engaged and therefore more in control. I have always found that there is more to the markets than just buying and praying or forgetting.
By removing the clutter from your mind and focusing on the task at hand you will be more engaged. For example, if you want to cut a diamond you don’t just shine a light over the diamond, you refine the light to a laser beam and the refined light cuts the diamond. Adapt that laser-like focus to trend following to achieve the results.
This means cutting out all the irrelevant information. If you want to trade a trend following strategy let that be your focus. There is only one top and one bottom per year and but there are still more opportunities in trading the other 250 trading days.
Refining this further, the markets can only do several things. They can go UP, DOWN, or SIDEWAYS. Gann and David suggested that the fastest money is made trading the strongly trending markets. Therefore as a trend trader, follow markets when they go UP as well as follow them when they go DOWN. How are you going to identify these strongly trending markets and what characteristic do you need to identify to confirm this setup, will be left up to you.
When you trade with a well‐thought‐out plan, it might take three months or more to put it together. David spent six months out at a country property to put his trading plan together. Once the legwork has been done, you will not need a large percentage of your business day to then execute trades. As David commonly suggests you want to spend 80% of your time identifying trading opportunities.
Lastly, if you understand your trading personality, you too can have an hourly work day. There are plenty of other trading styles. It is your choice how much you want to trade. It is your choice to sit in front of a screen and day trade, (which is a definite possibility) or to download daily data and determine what action you need to take, if at all. You can trade stocks, FX, or commodities. The same principles apply to all.
Too many times we try to make simple things more complicated! There are those who think simple means unsophisticated or impossible to generate money. They are very wrong and track records going back decades from many trend followers can prove them wrong.
The key to success or compounding money over time is the ability to stay focused, stay disciplined, follow the plan, and have patience. To me, this is the holy grail in trading!
It’s Your Perception
Robert Steer