Ex athlete Michael Melissinos went from promising baseball career to accountant to hedge fund manager.

How? Well, whilst working at Bear Stearns he spent his evenings studying trend following and systematic trading. His simple excel back testing beginnings made him realize trading was a game of discipline which suited his personality down to a tee.

A natural “protector” Michael moved into managing money of others where he now trades on behalf of his investors.

In the show Michael reveals:

  • The philosophy behind his success
  • Two ways to determine a trend
  • His definition of Adaptive Trend Following
  • The one thing in trading you shouldn’t flip flop on

Interview

62: Michael Melissinos on Why Trend Following Works When You Don't Follow the Herd
00:00:00 00:00:00

“Don’t think you have to win every day, week or month.” – 1:01:40

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Key Lessons

  • Adaptive Trend following – where you trade stocks, bonds, currencies (opening yourself up to capturing a trend in anything that works) in an attempt to provide a smoother performing mix
  • Until you live through it you don’t really feel it, i.e. looking at historical charts isn’t going to give you the same feeling
  • Measuring over one year, if it’s up go long, down go short
  • Look for breakouts of the 52 week high/low
  • Every strategy should cover, what you trade, when you trade and how much (position size) you trade
  • The 50 Simple Moving Average filters out a lot of the noise
  • Test different Moving Averages and Channels to find what works better
  • Sticking to a long term strategy is mentally tough
  • You can learn faster by teaching others
  • Take a step back before you get in the game – practice first or you’re going to be a loser
  • Going long long term means you can use simpler strategies like the MA cross over
  • Whatever style you choose, just do it every time and don’t “flip flop”
  • Don’t think you have to win every day, week or month

Michael’s Trading

  • Traded 11 markets when capital was limited, now he trades 50ish markets
  • Open to any trend or trade going
  • Doesn’t want to limit himself, wants to be a generalist
  • Holds a trade for an average of 8-9 months
  • Trades markets 3-6 times per year
  • Constantly gets whipsawed
  • Likes the longer time frames
  • Doesn’t look at charts, uses mathematical formulas instead
  • Imports new data daily to get information for the next day, i.e. moving stops
  • 45 positions on at the moment (some bigger than others), but usually 6 trades are running in a normal month
  • Typically risks 1% of equity per trade
  • 30-40% winning ratio, but the winners are much bigger than the losers
  • Tends to do the opposite from what the norm is
  • Doesn’t mind missing opportunities that aren’t inline with his systems
  • His special weapon is his wife (she’s very grounded)

Michael’s Strategy

  • Take two stocks from each sector to create a diversified portfolio
  • Get in at 100-200 day highs
  • Get out at 100-200 day lows
  • Bet a fixed amount of capital for each trade based on your risk tolerance, e.g. 1-5%
  • Test it first to see what sort of return you can expect

 

 

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HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.

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CFTC RULE 4.41 – HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.