Since December I have overhauled my entire trading philosophy and the way I traded. This new philosophy is known as trend following. Trend following has gotten me to quantify every aspect of trading and I see myself way behind the game due to the fact that I actually was introduced to the concept of trend following 2 years ago but never gave it a second thought until recently. To be honest, I fell into the “scalping trap” as one fellow trader put it.
What is the scalping trap? Grabbing the definition off of Trade2Win.com…
Definition: The term used for a day trade method where trades are opened and close within a very short time scale, perhaps anything from a second or two to a few minutes.
Its pretty much intra day trading where a trader is constantly in and out of the market. It requires a system or a method that is really accurate. When I scalped I had an average 80% accuracy in my trades.
Before I go any further, I want to make clear that I am in no way belittling this strategy nor proclaiming that it doesn’t work. In all modesty, my mentor scalped the markets with a high degree of success. (He is a multimillionaire just to let you know)
New traders in the financial market have the motivation and hard work mentality. They all are in pursuit of profits. Most believe that if they are constantly trading, they will make money and get rich quick. So it is of their choice to select a method that feeds that mentality of “constantly trading.” Some will experience success and some will experience financial loss but in general, the time required in front of the screen is really demanding. As a college student, I previously woke up at 7 or 8 am just before the NY open and traded gold with my scalping strategy. It didn’t fit in to my lifestyle which is why I ultimately switched.
I believe that intra day trading is for the short term oriented individual. It is something I do not recommend as I have come to realize that get rich quick mentality will typically lead to financial ruins.
An solution for individuals who want successful long term results should incorporate trend following in to their own trading style. When I say long term results I am talking about annualized return of 15% or greater.
I would like to show some staggering evidence in terms of the non conventional fund managers who have achieved long term successful results in trading commodities futures in places far away from wall street. (Really far away)
Bill Dunn of Dunn Capital Management
Salem Abraham of Abraham Trading Group
You probably never heard of these guys but you should get to know them. And guess what, they are trend followers. They don’t read news, they don’t predict where oil will go. They look at price only and trade their systems religiously.