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Investing with the Trend: A Rules-based Approach to Money Management



Investing with the Trend: A Rules-based Approach to Money Management

Gregory L. Morris

ISBN: 978-1-118-72669-3 December 2013 496 Pages


Investing with the Trend provides an abundance of evidence for adapting a rules-based approach to investing by offering something most avoid, and that is to answer the “why” one would do it this way.  It explains the need to try to participate in the good markets and avoid the bad markets, with cash being considered an asset class.  The book is in three primary sections and tries to leave no stone unturned in offering almost 40 years of experience in the markets.

Part I – The focus is on much of the misinformation in modern finance, the inappropriate use of Gaussian statistics, the faulty assumptions with Modern Portfolio Theory, and a host of other examples.  The author attempts to explain each and offer justification for his often strong opinions.

Part II – After a lead chapter on the merits of technical analysis, the author offers detailed research into trend analysis, showing how to identify if a market is trending or not and how to measure it.  Further research involves the concept of Drawdown, which the author adamantly states is a better measure of investor risk than the oft used and terribly wrong use of volatility as determined by standard deviation.

Part III – This is where he puts it all together and shows the reader all of the steps and details on how to create a rules-based trend following investment strategy.  A solid disciplined strategy consists of three parts, a measure of what the market is actually doing, a set of rules and guidelines to tell you how to invest based upon that measurement, and the discipline to follow the strategy

Foreword ix

Preface xi

Acknowledgments xv

Chapter 1
Introduction 1

Part I: Market Fiction, Flaws, and Facts 13

Chapter 2
Fictions Told to Investors 15

Chapter 3
Flaws in Modern Financial Theory 27

Chapter 4
Misuse of Statistics and Other Controversial Practices 51

Chapter 5
The Illusion of Forecasting 57

Chapter 6
The Enemy in the Mirror 71

Chapter 7
Market Facts: Bull and Bear Markets 83

Chapter 8
Market Facts: Valuations, Returns, and Distributions 113

Part II: Market Research 139

Chapter 9
Why Technical Analysis? 141

Chapter 10
Market Trend Analysis 159

Chapter 11
Drawdown Analysis 231

Part III: Rules-Based Money Management 267

Chapter 12
Popular Indicators and Their Uses 269

Chapter 13
Measuring the Market 281

Chapter 14
Security Ranking, Selection, Rules, and Guidelines 319

Chapter 15
Putting It All Together: The “Dancing with the Trend” Model 355

Chapter 16
Putting Trend-Following to Work 391

Chapter 17

Conclusions 399

Appendix A: Passive versus Active Management 409

Appendix B: Trend Analysis Tables 413

Appendix C: Market Breadth 445

Appendix D: Recommended Reading 457

Bibliography 459

About the Author 467

About the Online Resources 469

Index 471

“…make Greg's Investing with the Trend your next book purchase ... and in light of the current market action, the sooner the better.” —Advisor Perspectives