Volatility

Ceri Shepherd

12/6/2021 2 min read

With a long term leveraged investment system as we use at Trendinvestor volatility is always the number one issue, for many reasons.


We ride the dominant primary trend for many years, this is the dominant trend and it is the primary trend, but running counter to this trend we have secondary trends, that are sometimes minor and sometimes major.


During these times we will lose money and there is nothing that i can do, or would want to do to avoid this.


I say this because having a system that defines entry and exit points, also having a system that effectively insures our losses for the steepest declines/trends changes means that to maximise our results we need to let the position breath, with a normal correction it is best not to time this, but to stick with it, until it ends and then rises rapidly out of the correction bottom.


Trying to time this is hopeless, as it leads to a loss before you stop loss the position, and a further loss off opportunity as you reenter at a far higher position than the correction bottom.


To maximise profit you need to save up every single per cent of market gain, as some of this gain will be given back to the market in the inevitable corrections.


We only time primary trend changes, also known as Bull and Bear markets nothing else. Warren Buffett does not time anything, his belief is that the market is effectively one continuous Bull market, that has reactions that run against this. In my opinion he is correct. However this has led to a few 40% to 50% peak to trough declines for Mr Buffett as well. However ultimately he has been proven to be completely right, and his results over so many years, prove this point beyond any reasonable doubt.


However using leverage, we need to identify Bear markets and step aside into cash, the damage would be far too great otherwise, which is why we insure for the large corrections that proceed a Bear market.


Our results over the 26 years show clearly that our system, and our investment idea, our take on the markets works.


You need to stop loss a position, we do this with our system by recording a new Bear market signal, and we also do this by insuring the large decline that is necessary to trigger such a signal.


Placing a stop loss too close to the market is fatal, and you are virtually guaranteed to lose as the market naturally breathes in and out. I feel that stop losses are often a major reason behind repeated losses, and poor performance if not used correctly.


If you want to make good returns, you must be willing to let the position breathe as you accumulate profits and also losses. With a good system and knowing exactly how this works, you have to stick to the system at all times, as that is your edge. It really is a case of two steps forward and one step back.


The ability to take losses, often large, is a really critical component of being able to eventually make decent long term returns. I wish there was another way, certainly easier to sleep at nights, BUT THERE IS NOT.  

ceri@trendinvestor.co.uk
01329 738 738