Many years ago I discovered that a friend of mine from college worked for a very famous futures trader at an offshore location. I immediately contacted him and we had the opportunity to talk about a few trading war stories. I had only been trading for a couple years and had made some money using a version of the Turtle trading strategy as taught by Richard Dennis. The trade that made me a good amount of money was in the coffee market in 1994. That Spring, a frost hit in Brazil and sent coffee prices soaring.
My friend was an execution trader for the fund, and he indicated that they actually lost a good amount of money when the frost hit that coffee market, because they had carried over a short position from the previous trading day. Their basic trading strategy was a short term quantitative strategy that did not consider the longer term trends. This was before overnight electronic trading, and the strategy would normally exploit the idea of follow through in the direction of the previous days’ trend. Over the long run, that hedge fund has been one of the most consistently profitable funds in the world since the mid-1980’s.
On that day in 1994, one very established trading business lost a good bit of money in coffee, while trend followers who included coffee futures in their portfolio made big money on that trade. You can see the coffee chart below. Over time, BOTH strategies have performed well and provided strong returns for the investors in these trading funds.
The lesson here is that each individual trader must determine what strategy is most suitable to their own personality. This comes from research and actual trading experience. The individual needs to learn how they will react when the market goes against them, and whether they can stick to the strategy during losing streaks. Most people have difficulty employing a long term trend following system, and this is one reason why short term quantitative strategies have become more popular in recent years.
To own your own strategy you must 1) do the research, trade, and tweak your strategies, 2) learn how you react to adverse market conditions, 3) and keep a journal of your trades. Trading is like any other profession or craft…it takes time to master, and you can’t master it by using someone else’s strategies in their entirety. You must do your own research, and experience the markets firsthand. This does not mean you need to re-invent the wheel. Owning your strategy can simply mean making a tweak or an improvement to one you’ve learned from someone else to suit your own goals and personality. Once you own your strategy, success is just a matter of time.