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Book Summary: The Trend Following Bible PDF
The Trend Following Bible is a book by Andrew Abraham that teaches how to trade like professional traders who use trend following as their main strategy. Trend following is a method of profiting from long-term trends in the market, by entering and exiting trades based on the direction and strength of the price movements.
The book explains the basic principles of trend following, the benefits and challenges of this approach, and the key elements of a robust trading plan that incorporates risk management, position sizing, market selection, and exit rules.
The book also provides examples of trend-following systems, performance metrics, and historical data to illustrate the concepts and techniques. The book is intended for anyone who wants to learn how to trade successfully using trend following, regardless of their experience level or market preference.
The book is written in a clear and engaging style, with practical advice and insights from the author’s journey as a trend follower. The book is not a get-rich-quick scheme, but a realistic and disciplined guide to achieving market-beating returns over the long term. The book summary is as follows:
- Chapter 1 introduces the concept of trading as a profession, and the importance of having realistic goals, sufficient capital, and a plan before starting.
- Chapter 2 explains why trend following is a superior method of trading, and how it differs from other approaches such as fundamental or technical analysis.
- Chapter 3 describes the basic tenets of trend following, such as following the price, cutting losses, letting profits run, and diversifying across markets and time frames.
- Chapter 4 reveals how successful trend followers trade, and what are the common traits and habits that they share.
- Chapter 5 discusses the various risks involved in trend following, and how to manage them effectively using risk of ruin, drawdown, volatility, and correlation measures.
- Chapter 6 outlines the components of a complete and robust trading plan, including trend identification, entry and exit rules, position sizing, and stop-loss orders.
- Chapter 7 presents some examples of trend-following systems, such as breakout, retracement, moving average, and channel systems, and how to test and optimize them using backtesting and forward-testing methods.
- Chapter 8 shows how to measure and evaluate the performance of a trend-following system, using metrics such as return, risk-adjusted return, Sharpe ratio, Sortino ratio, and Calmar ratio.
- Chapter 9 provides some historical data and statistics on the performance of trend-following strategies over different periods and market conditions, and compares them with other benchmarks such as the S&P 500 index.
- Chapter 10 summarizes the main points of the book, and offers some final tips and recommendations for aspiring trend followers.
Excerpts From the Book
In this unique and insightful book, the author shares their extensive experience as a professional trader, aiming to provide aspiring traders with the tools needed for success. The motivation behind writing the book is to offer a comprehensive guide that addresses all aspects of trading, debunking myths and emphasizing the challenges one faces in the journey of trend following.
The author acknowledges the support received along their trading journey and sees writing as a way of giving back to the trading community. They stress the importance of learning from mistakes and hope to shorten the learning curve for new traders. The book aims to dispel the notion of easy money in trading and focuses on the hard work required for success.
Rather than offering false confidence, the author illustrates the major issues and challenges traders encounter, emphasizing the necessity of hard work and continuous learning. The goal is to provide specific methods, avoiding vague generalities, and instilling in readers the understanding that they are solely responsible for their success or failure in the market.
The author candidly discusses the difficulties of trading and acknowledges the mental challenges faced even by seasoned money managers. The narrative is grounded in reality, reflecting the author’s commitment to educating readers about the true nature of trading. The book also explores the author’s personal experiences, including the shock of MF Global’s bankruptcy, which led to the writing of this book as a response to the challenges in the industry.
Ultimately, the author hopes to guide readers towards becoming part of the 10 percent of consistent winning traders, emphasizing the need to internalize the lessons presented. The book closes with the analogy of trend following being a marathon, advocating for it to become a lifetime strategy for the reader.