Trend Trading

By Daryl Guppy

Quick Summary

Daryl Guppy provides a comprehensive guide to trend trading for private investors, covering trend identification, entry and exit management, position sizing, the Guppy Multiple Moving Average (GMMA) indicator, classical and modern Darvas box methods, and breakout trading strategies.

Executive Summary

"Trend Trading" is a practical guide written from the perspective of a private Australian equity trader. Guppy argues that private traders have significant advantages over fund managers -- smaller size allows faster execution, no reporting requirements, and the ability to sit in cash during unfavorable conditions. The book systematically covers every aspect of trend trading: identifying trends, confirming entries, managing positions, sizing trades, and exiting with maximum profit. Guppy introduces his signature GMMA (Guppy Multiple Moving Average) indicator and presents both classical and modernized versions of the Darvas box method.

Core Thesis

Trend trading is not about timing the market but about doing at least as well as the general market and outperforming it. Private traders can outperform professional fund managers by using their size advantage, maintaining discipline, and applying systematic trend identification and management tools. Over 400 stocks on the ASX increased by more than 30% between March and September 2003, but only traders with proper tools and discipline captured these returns.

Key Concepts and Frameworks

1. GMMA (Guppy Multiple Moving Average) -- A system of short-term and long-term moving average groups that reveals the behavior of both traders and investors.
2. Darvas Box Method -- Both classical and modern adaptations of Nicolas Darvas's breakout trading system.
3. Count Back Line (CBL) -- A technique for setting protective stops based on price action.
4. Position Sizing -- Systematic approaches to determining trade size based on risk tolerance.
5. Breakout Trading -- Identifying and trading price breakouts from consolidation patterns.
6. Exit Management -- Techniques for protecting profits while allowing winners to run.

Practical Applications for Traders

1. Use GMMA to identify the beginning and end of trends.
2. Apply the Darvas box method for breakout entry signals.
3. Size positions based on the distance to your stop loss.
4. Use the Count Back Line for setting trailing stops.
5. Sit in cash when no clear trends are present.

Critical Assessment

Strengths

• Written from the perspective of a private trader with real market experience
• Introduces the widely-used GMMA indicator
• Practical, chart-heavy approach with real examples
• Comprehensive treatment of the Darvas method
• Addresses position sizing and risk management

Limitations

• Australian market focus may limit direct applicability elsewhere
• Some methods require active monitoring
• The GMMA indicator can generate conflicting signals in choppy markets

Conclusion

"Trend Trading" is a practical, no-nonsense guide for private traders who want to capture trend-driven returns. Guppy's GMMA indicator and modernized Darvas method provide useful tools for identifying, entering, and managing trend trades.