Can Trend Trading Make a Lot of Money?

Looking at the search statistics for different types of trading brings to light a very interesting thought which I believe aspiring traders should consider.

When I looked at Internet searches relating to trading systems, one of the most commonly searched term was ‘forex day trading system’. This is the ‘sexy’ thing right now.

In contrast, the search term ‘trend trading system’ was well down the list with less than one tenth the number of searches.

Given that the vast majority of people out there are NOT profitable traders, and the vast majority of people are searching for short term and day trading systems, it is not a small leap to conclude that the profitability of day trading traders is likely to be poor on average.

The short term trading approaches are heavily marketed by the industry because the industry makes a lot of money off them. This does not mean they will be profitable for you though!

Now trend trading (trend following) has a number of things stacked against it, but none of them are related to making money:
– it is not sexy
– it is not exciting
– it doesn’t require your judgement
– it doesn’t incorporate hot tips
– it doesn’t use hunches or news
– it isn’t complex or sophisticated
– you can’t call yourself a ‘day trader’
– you don’t get to be right very often
– you have to take a lot of losses
– you have to have patience
– you have to give a lot of profit back
– it is psychologically challenging

BUT HERE IS THE THING:

Trend trading / Trend following works… and can make a LOT OF MONEY

Trend trading or trend following works across many asset classes. It has worked over many decades, it works in multiple timeframes. With a very simple trend following system you can generate very healthy returns with just 30-60 minutes per day whether you are trading $10k, $100k or $1m.

The beautiful thing about this style of trading is that your effort does not go up as your account size does, so you can make a lot of money without increasing your daily workload substantially.

Lets now contrast this with day trading where you get:
– excitement from rapid action
– interesting party conversation
– you can use tips or a hunches
– you get to be right a lot as you (hopefully) will have more winners than losers
– you can develop sophisticated systems or algorithms
– it is psychologically easier because it is more aligned to having a job and the core values of our (inappropriate) education system such as needing to be right, time expended equals success etc.

Now here is the problem – the vast majority of new short term traders are not successful and loose all of their money. But even if they succeed, they are tied to the computer all day because they have to make decisions in real time.

Given that my entire philosophy is about helping people improve their lifestyle, I would NEVER recommend short term trading because even if you do make a lot of money, you won’t have the time and freedom to enjoy it.

Before getting sucked in by popular ‘sexy’ trading styles, I suggest you consider the real likelihood of success and the resulting impact on your lifestyle. You may find that longer term styles of trading such as trend following or swing trading based on mechanical rules give you a better outcome.

I favor these longer term end of day trading systems because these have a good chance of long term success, provide an excellent return on your time, improve your lifestyle, can be done in almost any market from anywhere in the world as long as you have access to your end of day data feed.

If you want to understand more about EOD trading systems and signals, how trend following and longer term mechanical systems like this work, I recommend you read ‘Way of the turtle‘ by Curtis Faith or ‘Mechanical trading systems‘ by Richard Weissman.