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Chapter 1. Trend Following > Trend Following Modus Operandi: Follow Price

Trend Following Modus Operandi: Follow Price

Trend followers generate phenomenal returns because their decisions are ultimately based on one piece of core information: price. In an increasingly uncertain and, these days, downright unfriendly world, it is extremely efficient and effective if our decision-making is based on this single, simple, reliable truth. The constant barrage of fundamental data, such as price-earnings ratios, crop reports, and economic studies, plays into traders’ tendencies to make trading more complicated than it needs to be. Yet, factoring in every possible fundamental still does not tell a trader how much and when to buy, or how much and when to sell.

It is not unusual for many traders to become familiar with and focus on only one market (usually in their own country) to the exclusion of all other global opportunities. Seeking to maintain the maximum degree of comfort, they follow this one familiar market’s movements faithfully. If they specialize in stocks, they wouldn’t dream of branching out into currencies or futures. How can a stock trader know anything about currencies? The idea that you could know enough about Cisco and soybeans to trade them both seems unfathomable to some. But think about what cotton, crude oil, Cisco, Sun, GE, the U.S. dollar, the Australian dollar, soybeans, wheat, Microsoft, EMC, and Oracle all have in common. Price.


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