Jerry Parker- Thirty years of experience in trend-following trading
In this podcast Andrew Swanscott from Better System Trader interviews Jerry Parker. Jerry is one of the original “Turtle Traders”. The Turtles was a trading experiment conducted by Richard Dennis and William Eckhardt in the Eighties to try and determine if great traders were born or if they could be trained. If you are not familiar with the Turtle Traders experiment, I recommend that you read The Complete Turtle Trader by Michael Covel. This book provides an excellent overview of how 23 novice investors became overnight millionaires. Jerry was the most successful Turtles and is now Chairman and CEO of Chesapeake Capital that at one time managed over $2 Billion of assets. Jerry has been trading a similar trend-following style for over 30 years. Having researched and backtested other trading approaches he has not found any better trading style than medium to long term trend-following. He has not found short term trading to be profitable. In this interview Andrew and Jerry discuss trend following, how to approach wins and losses, dealing with drawdowns and tips on systematic trading. Jerry provides details of how he was chosen to be one of the Turtles and what it was like being part of the world’s most famous trading experiment. Jerry provides many trading lessons in the interview. If he could offer listeners just one piece of trading advice it would be: trade small and follow your system!
Lessons from the Podcast that will make you a better trader:
- If you are losing money but still following your system’s rules that is still good trading.
- Following the rules is the most important characteristic of a good trader. You should focus on trading correctly and not worry about performance.
- You must take all signals generated by your system. You can not afford to miss a good trade or a good trend. You can’t be afraid to take the trade.
- Missing a trade is worse than taking a trade that you get stopped out of.
- A small percentage of your trades will make the majority of your profits.
- Trend-following is boring but it works.
- What works in the market is not going to feel good. Trading is hard, it’s difficult and is psychologically tough to do.
- Keep good records of all your trades. Having a track record is your greatest asset in trading.
- Money Management is the most important trading rule.
- Diversification is important within a trend following system. Jerry allocates 25% of his risk budget to each of the 4 asset classes. Currencies, commodities, stocks and interest rates.
- Preservation of capital is key. Take small trades, longer term.
- You must be able to sit through drawdowns.
- If you are in a prolonged drawdown you should consider reducing positions sizes to make it psychologically easier to continue taking all the signals generated by your system.
- Jerry’s goal is to stay in a trade for 6 – 12 months. Your system needs to have stops that are outside the market noise or volatility so you can capture a good portion of the trend and not be whipsawed out of trades in a choppy market. This may require psychologically tough drawdowns of 30% plus on a trade.
- You need to learn to embrace your drawdowns.
- Embrace a systematic approach as there is no way to predict where the markets are going.
- When back-testing a trading system you need a large sample size of +/- 5000 trades. Once you have developed a trading strategy that has an edge you need to stick with it.
- A good system should not have a lot of moving parts. It should have one entry, one exit and a stop loss.
- Avoid tweaking your system too much.
- You should aim for a system that has a 40%-win rate. Average wins versus average losses should be around 3:1.
- Jerry trades both long and short.
- Let you profits run and take small losses, avoid taking small profits.
- Don’t look for approval of others, trading is a lonely endeavour.
- Jerry’s favourite trading book are Winning on Wall Street by Martin Zweig and the Market Wizards series by Jack Schwager.