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Trend Following: How Great Traders Make Millions in Up or Down Markets

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Trend followers do not trade with grim resolve or with an intention to impress others. They are playing the game to win and enjoying every moment of it. Like other high level performers, such as professional athletes and musicians, they understand how critical it is to maintain a winning attitude if you want success. This chapter teaches you the basics of trend following for investors.
This chapter is from the book

"Speculation is dealing with the uncertain conditions of the unknown future. Every human action is a speculation in that it is embedded in the flux of time." —Ludwig von Mises1

The Market

A market is simply a place where buyers and sellers gather to trade and exchange goods, buying and selling for any number of reasons. The market performs the essential role of connecting financial and real economies. The New York Stock Exchange and the National Association of Securities Dealers Automated Quotation System (you hear it called NASDAQ on the news) are two markets. There are also futures exchanges like the Chicago Board of Trade or the Chicago Mercantile Exchange. All of these exchanges are markets where trend followers do their buying and selling.

The people that I know who are the most successful at trading are passionate about it. They fulfill what I think is the first requirement: developing intuitions about something they care about deeply, in this case, trading. They are the people who study years of charts, or commodity annuals . . . They develop a deep knowledge of whatever form of analysis they use. Out of that passion and knowledge, their trading ideas, insights, and intuitions emerge.

Charles Faulkner2

It is the markets' ability to give a "price" that buyers and sellers can rely on as fact. Ludwig von Mises, the great Austrian economist, offered:

"It is the very essence of prices that they are the offshoot of the actions of individuals and groups of individuals acting on their own behalf. The catallactic concept of exchange ratios and prices precludes anything that is the effect of actions of a central authority, of people resorting to violence and threats in the name of society or the state or of an armed pressure group. In declaring that it is not the business of the government to determine prices, we do not step beyond the borders of logical thinking. A government can no more determine prices than a goose can lay hen's eggs."3

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