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● Galileo Galilei: “All truths are easy to understand once they are discovered; the point is to discover them.”

● Hendrik Houthakker (1961): “Price changes are not purely random, but follow certain longer run trends.” Inspired by Benoit Mandelbrot, Houthakker was an early EMT critic.

● Ed Seykota: “All profitable systems trade trends; the difference in price necessary to create the profit implies a trend.”

● Prices, not traders, predict the future.

● If you don’t have losses, you are not taking risks. If you don’t risk, you can’t win anything.

● Price goes either up, down, or sideways. No advance in technology, leap of modern science, or radical shift in perception will alter this fact.

● What if they told you the best way to get to point B, without bumping into walls, would be to bump into walls and not worry about it? Don’t worry about getting to point B, but enjoy bumping into walls.64

● Trend following strategy is not for trading alone. The MIT blackjack team led by Mike Aponte (podcast episode #22) pursued very similar strategies, as do venture capitalists like Marc Andreessen. Film producer Jason Blum also uses an edge-seeking strategy to produce films.

● To receive my free interactive trend following presentation send a picture of your receipt to receipt@trendfollowing.com.

Author note: The following quotations appear in the hardcover side margins

The aim is to make money, not to be right.

Ned Davis

The people that I know who are the most successful at trading are passionate about it. They fulfill what is the first requirement: developing intuitions about something they care about deeply, in this case, trading.

Charles Faulkner 65

Who will check the ‘fact checkers?’ Who will watch the watchmen?

Anonymous

Too many people simply give up too easily. You have to keep the desire to forge ahead, and you have to be able to take the bruises of unsuccess. Success is just one long street fight.

Milton Berle

A study on human behavior shows 90 % of the population can be classified into four basic personality types: Optimistic, Pessimistic, Trusting and Envious. Envious, at 30 %, is the most common.

Universidad Carlos III de Madrid

The free market punishes irresponsibility. Government rewards it.

Harry Browne

The absolute number doesn’t matter, it’s the trend over time.

Seth Godin

Gaslighting is a form of manipulation that seeks to sow seeds of doubt in a targeted individual or members of a group, hoping to make targets question their own memory, perception, and sanity.

Wikipedia

The joy of winning and the pain of losing are right up there with the pain of winning and the joy of losing. Also to consider are the joy and pain of not participating. The relative strengths of these feelings tend to increase with the distance of the trader from his commitment to being a trader.

Ed Seykota 66

If you think education is expensive, try ignorance.

Derek Bok

Nothing has changed during the 21 years [over 40 years now] we’ve been managing money. Government regulation and intervention have been, are, and will continue to be present for as long as society needs rules by which to live. Today’s governmental intervention or decree is tomorrow’s opportunity. For example, governments often act in the same way that cartels act. Easily the most dominant and effective cartel has been OPEC, and even OPEC has been unable to create an ideal world from the standpoint of pricing its product. Free markets will always find their own means of price discovery.

Keith Campbell 67

He who lives by the crystal ball will eat shattered glass.

Ray Dalio

Whenever we get a period of poor performance, most investors conclude something must be fixed. They ask if the markets have changed. But trend following presupposes change.

John W. Henry 68

With the possible exception of things like box scores, race results, and stock market tabulations, there is no such thing as objective journalism. The phrase itself is a pompous contradiction in terms.

Hunter S. Thompson

One of our basic philosophical tendencies is that change is constant, change is random, and trends will reappear if we go through a period of non-trending markets. It’s only a precursor to future trends and we feel if there is an extended period of non-trending markets, this really does set up a base for very dynamic trends in the future.

Research at John W. Henry 69

Our ace in the hole is that the governments usually screw things up and don’t maintain their sound money and policy coordination. And about the time we’re ready to give up on what usually has worked, and proclaim that the world has now changed, the governments help us out by creating unwise policy that helps produce dislocations and trends.

Jerry Parker 70

Ultimately, it is the dollar-weighted collective opinion of all market participants that determines whether a stock goes up or down. This consensus is revealed by analyzing price.

Mark Abraham

Now walking into client meetings we hardly ever have a discussion around why trend following works – the battle has been won.

Anthony Todd

It is not the strongest of the species that survive, nor the most intelligent, but the ones most responsive to change.

Charles Darwin

Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.

Paul Samuelson

The trend is your friend except at the end when it bends.

Ed Seykota 71

Defining a trend is like defining love. We know it when we see it, but we are rarely sure exactly what it is. Fung and Hsieh’s paper goes a long way to doing for trends what poets have been trying to do for love since time immemorial. They give us a working model that quantitatively defines their value for us. Traders will not be surprised to learn that trend following advisors performed best during extreme market moves, especially during bad months for equities. 72

Change is not merely necessary to life – it is life.

Alvin Toffler

The people who excel in any field are people who realize that the moment is there to be seized – that there are opportunities at every turn. They are more alive to the moment.

Charles Faulkner 73

The four most expensive words in the English language are: this time it’s different.

Sir John Templeton

They are like surfboard riders, who study the movements of the waves, not in order to understand why they behave as they do, but simply in order to be on hand whenever they surge, to catch them at their crest, or as soon thereafter as possible to ride them as far as they possibly can, and to dissemble before they change direction.

Morton S. Baratz 74

Markets don’t move from one state to another in a straight line: There are periods of countertrend shock and volatility. We spend most of our time trying to find ways to deal with those unsettling but inevitable events. That being said, it is really not difficult to put together a simple trend following system that can generate positive returns over a realistic holding period and there are many, many commercial systems that have been generating strong, albeit volatile, returns for a long time. So there are definitely firm grounds for believing in Santa Claus.

Paul Mulvaney

By honest I don’t mean that you only tell what’s true. But you make clear the entire situation. You make clear all the information that is required for somebody else who is intelligent to make up their mind.

Richard Feynman

Warren Buffett says in the long run the stock market is a weighing machine and in the short term it is a voting mechanism. He exploits the weighing machine and we exploit the voting mechanism.

David Harding

Ed Seykota is a genius and a great trader who has been phenomenally successful. When I first met Ed he had recently graduated from MIT and had developed some of the first computer programs for testing and trading technical systems… Ed provided an excellent role model. For example, one time, he was short silver and the market just kept eking down, a half penny a day. Everyone else seemed to be bullish, talking about why silver had to go up because it was so cheap, but Ed just stayed short. Ed said, “The trend is down, and I’m going to stay short until the trend changes.” I learned patience from him in the way he followed the trend.

Michael Marcus 75

Be less curious about people and more curious about ideas.

Marie Curie

The wisest trend follower I know has said that every five years some famous trader blows up and everyone declares trend following to be dead. Then, five years later, some famous trader blows up and everyone declares trend following to be dead. Then, five years later.. was the problem trend following or the trader?

Anonymous

Trend following is similar to being long options because the stop loss creates a limited downside, and the continuation of the trend creates the large upside. This is why the phrase for this approach to trading is to cut losses and to let profits run. Of course, if trends continually fail to materialize, these limited losses can accumulate to large losses. This is also true for any option purchase strategy. For trend followers, the option premium is paid for after an unsuccessful trade is closed when a stop loss has been reached. The premium can also be paid after markets have moved a great deal, profits have been made, and a reversal causes a trailing stop to be hit, and some of the profits reversed.

President, Graham Capital Management 76

In Patton, my favorite scene is when U.S. General George S. Patton has just spent weeks studying the writing of his German adversary Field Marshall Erwin Rommel and is crushing him in an epic tank battle in Tunisia. Patton, sensing victory as he peers onto the battlefield from his command post, growls, “Rommel, you magnificent bastard. I read your book!”

Paul Tudor Jones in George Soros’ The Alchemy of Finance

Bull market babies don’t survive, they revert to the mean.

Michael Covel

I began to realize that the big money must necessarily be in the big swing.

Jesse Livermore

Many people would sooner die than think; in fact, they do so.

Bertrand Russell

Among people who take the trouble to understand what the business is about instead of assuming it involves speculating on live cattle, it is readily understood.

Campbell & Company 77

If you take emotion – would be, could be, should be – out of it, and look at what is, and quantify it, I think you have a big advantage over most human beings.

John W. Henry 78

A trend is a trend is a trend. Gertrude Stein would have said if she were a trader, “Once you have a game plan, the differences are pretty idiosyncratic.”

Richard Dennis 79