Forum Archive Index - June 2003

[Phaedrus <Phaedrus@techemail.com>]

Snoopy,
       Your argument is illogical. Before I tackle your misconceptions, let's 
define a trend and a trend follower so that we are at least discussing the same 
things:-
 An uptrend is a series of higher highs and higher lows. A trend follower is 
one that looks for stocks that are in an uptrend, buys, and holds until the 
uptrend ends.

 You state "You make the assumption that most trend followers are as meticulous 
and sophisticated as you are." 
 No I do not. The trendline break system that I use is probably the simplest of 
all trend following techniques. Sophisticated? I think not!  Additionally, in 
an attempt to cater for other trend followers interested in trading either more 
and less actively than me, I incorporated multiple moving averages into the 
chart, thus covering people short-term trading right through to the very 
conservative users of a 200 day ema. Again, using moving average crossovers as 
exit signals is a very simple technique that is anything but sophisticated. 

"What would have happened if a person scanning the daily papers saw WHS trading 
in mid April at $5.30 or so and saw the price rising?  They saw it had bounced 
off the support level at $5.30 twice in recent months and could see the price 
rising again so decided it was a good time to 
buy."
This person may have bought, but they would NOT have been a trend follower. 
Trend followers would have seen that WHS was making lower highs, price action 
was below their chosen moving average, and that WHS was still in a downtrend. 
There is simply NO WAY a trend follower would have bought here! 

".....none of this would be any consolation to the *unsophisticated* TAer that 
bought in at $5.30 in mid April." 
Anyone buying at $5.30 in mid April would have been buying into an established 
downtrend. Even the most unsophisticated user of TA would be unlikely to do 
this. You claim to be using an  "*unsophisticated* TAer" as an example, but in 
fact their hypothetical actions show a total ignorance of even the most basic 
TA principles. Unfair!

"As I see it, my point that an (unsophisticated) pure trend follower may have 
indeed lost money by selling out WHS in the low $4 range, still stands." 
Snoopy, trend followers (even unsophisticated ones) sell at the END of 
UPTRENDS, they DO NOT sell at the end of DOWNTRENDS. They then buy at the 
beginning of Uptrends - see arrows on chart. I went out of my way to include in 
the chart a 200 day moving average such as would be used by conservative (read 
unsophisticated) trend followers. The point of showing these different systems 
on the same chart was to demonstrate the ALL trend followers would have been 
out of WHS well before the meltdown -  no matter how simple the system they 
used. In addition ALL of these various systems kept their users out of the 
"rally" that sucked you in.
         Regards,   
                   Phaedrus.

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