Douglas Stewart - Trend following trading
In this week’s podcast Michael Covel from Trend Following Radio interviews Douglas Stewart. Doug is a trend following trader who now runs Sherwood Forest Capital Management. Doug graduated college as a teacher but transferred into financial services immediately after graduating. He started trading in 1995 right before the dot-com boom and entered the financial services industry in 1999. Fun Fact for younger traders: in 1999 the Nasdaq composite had a return of over 85%! The dot-com crash in 2000 caused Doug to start questioning the traditional financial planning mindset of buy and hold. He asked the question “who took my money?”. He discovered that the people who made money on the way down were the same people who made money on the way up. About the same time he read Jack Schwager’s classic “Market Wizards” and became a trend following convert. Doug notes that all the traders in “Market Wizards” book have their own strategy but the one common trait was that they all managed their risk. His goal is to make money for his clients in every cyclical bull market and every cyclical bear market. Doug primarily uses ETF’S in order to trade both up and down trending markets.
Trading advice from the Podcast that will make you a better trader:
- Be careful using technical analysis as a predictive tool.
- Risk analysis is the most important component of any trading strategy.
- Don’t try and predict the market simply follow it!
- To be a successful trader you can’t have a big ego and need to be right all the time
- You need to know how to get out of both your losing and winning trades.
- Most people will never get trend following because it goes against human nature.
- Traditional Financial Planners make their money by trying to convince people that they can predict the future. They can’t, nobody can.
- 80% of a stock’s move is a result of being part of a market sector that is trending.
- Inverse ETF’s and International ETF’s can be used to diversify your risk.
- You can significantly outperform the overall market by limited your downside risk.
- If you’re account goes to zero you can play the game anymore.
- Take a Zen approach to the market and accept that you’ll never be able to accurately predict where the markets might go.
- A trader’s goal should be to protect, and grow money, in any market environment.
- As a trend following trader you have to be ok with a trendless market where you will have drawdowns.
- You can use your portfolio as a good indicator of market direction. (i.e., If you have more and more long positions that you are stopped out of maybe the trend is weakening).
- To be successful you need to turn off all the noise (i.e. CNBC) as it will pull you in too many different directions and make it harder to trust your strategy.