Trend Following, 5th Edition

11 The Game

Treat your life like a game.

—Ray Dalio

Trends come and go. Trend followers do too. Some stay longer than others.

—Ed Seykota¹

Larry Hite described a conversation with a friend who couldn’t understand his absolute adherence to a mechanical trading system. His friend asked, “Larry, how can you trade the way you do? Isn’t it boring?” Larry replied, “I don’t trade for excitement; I trade to win.”

In Absolute Returns, author Alexander Ineichen stresses that ­trading is nothing more than a game. There are three types of players in this game:

• Those who know they are in the game.
• Those who don’t know they are in the game.
• Those who don’t know they are in the game and have become the game.²

If, within a half of an hour of playing whatever game, and you don’t know who the patsy is, you’re the patsy or the game.

Throughout, I have introduced traders who didn’t know they were in the game and became the game in the big events of Long-Term Capital Management, the Barings Bank collapse, the October 2008 market crash, and Brexit. I have introduced traders and investors who did not know they were in the game and who pursued Holy Grails that never panned out. And I introduced trend following traders who knew they were in a game and brought an edge to the table every time they played. If you know it’s a game and you must know that by now, the choices are stark.

Acceptance

If you’re concerned this work will create a new generation of trend following traders, and that impact ...