Observations of Richard Dennis
1. Do you feel the recent prevalence of false breakouts is related to the tremendous increase in computerized trend-following trading during the past five to ten years? Are there just too many people doing the same thing, getting in each other's way?
Yes, there is no doubt about it. In a perverse sort of way, it represents the ultimate triumph of technical trading over fundamental trading. I say perverse because it is a victory that devalues technical trading.
2. Do you think we may see the day when trend-following systems no longer work?
There will come a day when easily discovered and lightly conceived trend-following systems no longer work. It is going to be harder to develop good systems.
3. Given that, can the approaches you were using before still work with the same efficacy?
Actually, I believe that if you view the problem correctly, you can make the fact that there are many other trend followers in the market work to your advantage. I can't get too specific about the solution, because if we are right, that is pretty valuable information. To be successful you always have to be one step ahead of everyone else.
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